ECB lowered stimulus after hitting opposition from central bankers

Hints by Mario Draghi ahead of last Thursday’s ECB rate meeting that the eurozone may need another big injection of money backfired, stiffening the resolve of more conservative central bankers who criticised him for raising expectations too high, sources familiar with the discussions said.

The European Central Bank president and his chief economist Peter Praet stoked expectations with dovish speeches in the weeks before the meeting but the ECB’s Governing Council concluded that markets needed to be disappointed this time because the economic outlook has improved and new inflation forecasts were not as bad as feared, the sources said.

A pending US Federal Reserve rate hike also factored into the decision, though to a lesser extent, as policymakers were concerned that a big move by the ECB would weaken the euro further and possibly force the Fed to delay its own action on rates to prevent a too rapid divergence of policy between the world’s top two central banks.