International investors cool on eurozone

International investors are cooling on the eurozone, with a survey indicating rising scepticism around the true health of the region’s economy and dissatisfaction with the ECB’s monetary policy.

At its latest policy meeting in Frankfurt yesterday, the ECB kept its loose monetary policy stance unchanged, as expected, and deferred deciding how and when to venture the next step towards policy normalisation until later this year.

It repeated that it expects borrowing costs to stay at present levels for an extended period and that it is prepared to increase the size or duration of its asset- purchase programme should the economy take a turn for the worse.

Yesterday’s announcement comes six weeks after the ECB took an initial step toward winding down unconventional monetary policy by dropping the wording on extra interest-rate cuts and stating the risks to the economic outlook had become broadly balanced.

The ECB maintained its deposit rate at -0.4%, kept the main refinancing rate at zero and retained its commitment to buy €60bn of debt a month until at least the end of the year. President Mario Draghi said policymakers are still waiting for inflation to catch up with the economy’s recovery, as they put off any discussion on winding back stimulus until after the summer.

“We are finally experiencing a robust recovery where we only have to wait for wages and prices to follow course. We need to be persistent and patient and prudent because we’re not there yet,” he said.

However, 48% of investor respondents to the latest monthly fund manager survey from Bank of America Merrill Lynch said global monetary policy is “too stimulative”, meaning they think central banks are pumping too much money into the world economy.

That feeling among investors has been steadily increasing and is now at its highest in over six years.

The survey also found investors becoming more sceptical about further improvements in Europe. Some 51% expect the European economy to strengthen over the next year, but that is down 10% from June.

“Investors expect eurozone inflation to rise and find monetary policy too stimulative, putting the ECB’s signalling powers to the test,” said Ronan Carr, Bank of America Merrill Lynch’s European equity strategist. n Additional reporting Bloomberg

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