- Unsurprisingly, the ECB maintained the monetary status quo at its October meetingMario Draghi restated the commitment to preserving the substantial amount of monetary accommodation needed to secure a sustainable return of inflation towards target.
- Mario Draghi specified the kind of inflation dynamics he was looking for: basically, a self-sustained inflation, which is to say an inflation driven by robust demand and wage growthThe emphasis is put on core inflation.
- MDraghi dismissed the idea that has been circulating in recent weeks of an imminent taperingHowever, no clue was given concerning the possibility of extending QE in December.
- Although the low inflation outlook argues for the extension of QE, there still seems to be major disagreements within the Governing Council concerning changes in the parameters of QE in order for it to continue.
At its monetary policy meeting on Thursday, the ECB unsurprisingly maintained the status quo. What are the most important points to be gleaned from this meeting?
First, there is what was said, or rather reaffirmed: “the monthly asset purchases of EUR 80 bn are intended to run until the end of March 2017, or beyond, if necessary”. This dismissed the idea that has been circulating in recent weeks of an imminent reduction in the pace of monthly purchases. Although QE is bound to be tapered – an abrupt ending is highly unlikely – this is not about to happen anytime soon.
QE will continue as long as necessary to secure a sustained convergence of inflation towards the ECB’s target, i.e. inflation close, but below 2% over the medium term. Concerning this later point, M. Draghi specified what kind of inflation dynamics he meant: a self-sustained inflation, i.e. driven by robust demand and wage growth. This means that the upcoming rebound in inflation due primarily to energy-related base effects will not be considered satisfactory. From a medium-term perspective, the most pertinent indicator is clearly core inflation (excluding energy and food prices), which, in the ECB’s words, shows “no signs yet of a convincing upward trend”.
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by Thibault MERCIER