ECB to monitor Brexit impact before making stimulus decision

The European Central Bank has adopted a wait-and-see approach to the UK’s Brexit decision and will wait for at least another six weeks before deciding whether it needs to boost growth in the eurozone.

The ECB president, Mario Draghi, said his staff would “continue to monitor economic and financial market developments very closely” but gave no clues as to what the bank might do.

Financial markets had not expected any action from the ECB but saw Draghi’s comment that the bank had a “readiness, willingness and ability” to act as a clear sign that further stimulus was on the way.

The ECB president said over the coming months his organisation would be in a better position to assess the state of the eurozone economy and the impact of Brexit on growth and inflation.

Draghi added that, if warranted, the ECB would use all the “instruments available within its mandate”, leaving open the possibility of fresh cuts in interest rates or an expansion of its quantitative easing (QE) programme.

Following the example of the Bank of England, the ECB made no changes to policy at the first meeting of its governing council since the UK’s referendum, leaving interest rates unchanged and deciding to continue to buy €80bn (£67bn) of assets a month under its QE programme.

Marc Ostwald, strategist at ADM investor services, said Draghi had given a “masterclass in stonewalling” at a press conference to explain the ECB’s lack of action.

“Overall, Draghi appeared to be very determined to say nothing of any significance. To be fair, he and the rest of the council have stressed for a number of months that the existing package of policy measures must be given time to work, and that an assessment of whether there might be a need to do more would not happen before the September meeting and staff forecast update,” he said.

“Thus the message was that the ECB is ‘ready, willing and able’ to act ‘if needed’, while stressing that risks are to the downside of their forecasts, to underline a dovish bias.”

Ian Kernohan, economist at Royal London Asset Management, said: “While we think Brexit uncertainty is mainly an issue for the UK economy, there is also bound to be some knock-on impact on the eurozone. With post-Brexit evidence still patchy, we think the ECB will wait until the September meeting before extending its QE timetable.

“Inflation remains far below the ECB’s target of 2% and while headline inflation will rise later in the year, thanks to the fading impact of a lower oil price, underlying inflationary pressures still remain very low. Delaying until September will allow an assessment of any Brexit impact to be outlined in the new ECB staff forecasts.”

Powered by article was written by Larry Elliott, for on Thursday 21st July 2016 16.28 Europe/ © Guardian News and Media Limited 2010


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