Analysts have hailed ECB head Mario Draghi as his handling of a cutback in euro crisis measures helped relieve European exporters, boosted European stock- markets, pushed down Irish bond yields, while reassuring there would be no early hike in interest rates.
There had been fears that plans by the ECB to eventually cut back on its market supports that had helped save the eurozone from the continent’s debt crisis would potentially upset financial markets.
However, the ECB president at a key meeting of the central bank adroitly announced the halving of the €60bn a month bonds purchases but at the same time reassured that the reduced stimulus would last longer.
That reassured many investors that any increase in interest rates for households and firms across the eurozone would still only come at the earliest by late 2019 or early 2020.
“The ECB meeting was played up to be all about tapering, but Mario did what Mario does best, shifting the focus onto an extension, which will see another nine-months of asset purchases at a lower rate of €30bn,” said IG market analyst Joshua Mahony.
“This is a classic case of markets buying the rumour and selling the fact, with today’s announcement largely meeting market expectations. Crucially, we are unlikely to see ECB asset purchases end in September 2018, with Mario Draghi ensuring that he is unlikely to ever have to raise interest rates in his role as ECB governor,” he said.
The Dax index of leading German shares reached record highs and the euro went lower. Against the dollar, the currency plunged 1% to $1.168, and fell almost 0.5% to 88.7p against sterling.
The yield on the 10-year Irish bond fell four basis points to 0.66%. Senior analyst Ryan McGrath at Cantor Fitzgerald Ireland said Mr Draghi had achieved the difficult task of cutting back on stimulus programme, while at the same time saying any interest rate rise was a long way off, and achieving a lower euro and avoiding any market panic.
“He will be quite satisfied with his day’s work,” said Mr McGrath. Brendan Lardner at State Street Global Advisors said: “The announcement could be seen as slightly dovish as no firm end date was given for the bond-buying programme and the Governing Council have made a concerted effort to keep expectations for rate hikes under control with their forward guidance that rates will not rise until well after they have finished those purchases.
“This relatively longer taper is likely to provide some support for higher-yielding assets, such as peripheral sovereign bonds and corporate credit,” he said.
David Lamb, head of dealing at Fexco Corporate Payments said there was no guarantee that the euro would be pegged back.
“The ECB has made no secret of its fears that the strong euro is hurting eurozone exporters, and it’s likely these fed into its decision to leave the monetary stimulus taps running.
“But with inflation creeping up as growth takes hold, such recalcitrant dovishness will eventually have to give way as the bank’s mandate to restrict inflation takes precedence.
“So while the euro has been pegged back by today’s decision, the strength of the eurozone economy could soon nudge it out of the narrow range it has held for the past month,” Mr Lamb said.
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