Markets rally as Mario Draghi signals eurozone upturn

The ECB has pledged to keep its aggressive stimulus policy at least until the end of the year, but markets leaped higher as it signalled there was less of a need to prop up growth and inflation in the eurozone.

President Mario Draghi yesterday said the ECB had removed one phrase from his standard introductory statement that pledged it would act “using all the instruments available within its mandate” if needed to achieve its objectives.

That was enough to send German 10-year bond yields up 5 basis points, while the euro rose to just over 87p and to $1.06, up more than half a percent on the day.

European shares hit session highs, erasing earlier losses. The ECB’s leadership has faced calls from Germany to start winding down its €2.3tn bond-buying scheme, or at least signal its intention to do so, as growth and inflation rebound.

Germany’s central bank governor Jens Weidmann and ECB director Yves Mersch have both made the case for ruling out further rate cuts.

German Finance Minister Wolfgang Schaeuble went further yesterday, saying he was in favour of a “timely start to the exit” from the ECB’s loose monetary policy, echoing calls from the German banking association and the Ifo economic institute.

That has left Draghi walking a tightrope, as improvements on the economic front are at risk of being derailed by hazards including the Dutch and French elections and global economic governance under US president Donald Trump.

The central bank nonetheless stuck to its plan of continuing the purchases until December. It also pledged to keep interest rates at current, record-low levels until long after that, or even cut them if necessary.

“If the outlook becomes less favourable, or if financial conditions become inconsistent with further progress towards a sustained adjustment in the path of inflation, the Governing Council stands ready to increase the programme in terms of size and/or duration,” the ECB said.

Justifying his stance, Draghi presented upgrades in inflation expectations for this year and next but argued they did not alter the overall picture. n Reuters