European Central Bank president Mario Draghi said the bank may revamp its bond-buying programme to support the euro.
However, the lack of concrete action has disappointed, with the markets falling after Draghi failed to resolutely follow through on pledges to “do whatever it takes” to preserve the single currency.
The president announced the central bank could undertake open market operations to help ease high government borrowing costs on the eurozone periphery.
Draghi said the ECB’s governing council discussed a range of policy actions designed to tackle the “severe malfunction” of pricing in sovereign bond markets.
“The governing council, within its mandate to maintain price stability over the medium term and in observance of its independence in determining monetary policy, may undertake outright open market operations of a size adequate to reach its objective,” the president says.
However, the president added that any government bond-buying programme would be “very different” from its previous intervention in the market. He also said bond market intervention would focus on “the shorter part of the yield curve” and clear “conditionality” would be imposed on governments.
Furthermore, he suggested that the central bank could be poised to unveil unconventional stimulus measures in the near future.
“The governing council may consider undertaking further non-standard monetary policy measures according to what is required to repair monetary policy transmission,” he adds.
“Over the coming weeks, we will design the appropriate modalities for such policy measures.”
Investors had hoped for more from the ECB’s meeting today. The FTSE 100, Germany’s Dax, France’s Cac 40 and Spain’s Ibex indices all fell after the speech, while the yields on Spanish and Italian government debt rose.
Draghi also stressed that eurozone governments have to continue with fiscal consolidation, structural reform and institution building to bring borrowing costs down. Policymakers also need to be prepared to activate eurozone rescue funds, he added.
There was widespread expectation of bold policy action after Draghi told last week’s Global Investment Conference in London: “Within our mandate, the ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough.”
Draghi’s comments prompted speculation that the ECB was poised to restart sovereign bond purchases under its securities market programme, which has not been used for about six months.
Other options that were mooted included granting a banking licence to the European Stability Mechanism rescue fund, embarking on further long-term refinancing operations and starting an official quantitative easing programme.
However, some commentators expressed doubt that the ECB would be prepared to take drastic action this month after pointing out that Draghi’s comments appeared to have been made off the cuff.
Meanwhile, the caveat that the bank would act “within its mandate” suggested that any action would be unlikely to depart radically from past measures.
In today’s monthly monetary policy meeting, the central bank decided to keep its main interest rate at 0.75 per cent.