‘The disappointment is palpable’: Markets slump on Draghi QE move


European Central Bank president Mario Draghi’s much-anticipated decision to extend the €60bn monthly quantitative easing programme has underwhelmed markets and been branded a “damp squib” by commentators.

Draghi’s decision to extend QE until the end of March 2017 in a bid to boost inflation was not the dramatic move expected by many.

Last month, Draghi said he would do whatever it takes to raise inflation as quickly as possible, but he has now overpromised and underdelivered, says Architas senior investment manager Sheldon MacDonald.

He says: “Markets have since priced in an emphatic demonstration of a divergence in interest rate policy between the looser, reflationary tack of the ECB and that of the US Fed, which is expected to announce an end to a decade of its zero interest rate policy later this month.

“Markets had anticipated a more generous timeframe as well as a possible increase in the size of the monthly purchases,” says MacDonald.

Even the move by Draghi to expand the programme of asset purchases to municipal bonds “failed to impress”, he adds.

Tilney Bestinvest managing director Jason Hollands says: “Overall this news is somewhat underwhelming and the immediate reaction from the currency markets has been a strengthening in the euro, but nevertheless the policy remains a loose one.”

The euro has strengthened and stock markets have slumped on the back of the ECB announcement.

Hargreaves Lansdown senior economist Ben Brettell says: “The disappointment in financial markets is palpable this afternoon.

“Draghi concluded by asking governments to adopt more growth-friendly fiscal policies – a recognition that monetary policy alone might not be sufficient to get the euro zone out of the mire.

“However, given the already huge levels of government debt it is difficult to see where any significant fiscal stimulus could come from. The road to recovery in Europe remains long, bumpy and sharply uphill.”

Commentators were also critical of Draghi’s decision to cut the deposit rate, with Neil Williams, group chief economist at Hermes, describing his 10 basis point reduction to -0.3 per cent as “puny”.

He says: “Aimed at discouraging cash hoarding, even more negative rates will likely be needed if the liquidity QE throws up is to be pushed out to where it matters most – consumers and businesses.”