What could make the ECB change its strategy?

This is the question we could well raise the day after Mario Draghi’s press conference that followed the monetary policy meeting.

The President of the ECB was emphatic in convincing his audience and the entire investment community that there is no question of the central bank changing the way it operates for now, even though it has adjusted the way it communicates on its policy. Any reference to a possible cut in interest rates was deleted from the press release, but according to Mario Draghi, this is not enough to indicate the announcement of a change in policy. The ECB is neither ready nor willing to change policy.

Insufficient inflation, which lags well behind the 2% target set out by the ECB, is the main factor behind this status quo. The President of the ECB again insisted that inflation volatility was solely due to oil price fluctuations. The other components of inflation are much more stable and increased by only slightly less than 1% per year on average over the past three years. This is low and still below the target. The ECB therefore has no reason to rush to change its stance. Continue reading

The ECB meeting – 4 points to keep in mind

4 points to keep in mind after the ECB meeting

1 – The forward guidance has changed. In the press release the possibility of lower interest rates has been erased (see here). It’s a real change in the ECB communication. Draghi said that this was linked to the fact that the risk of deflation is now null.
BUT the ECB president said that it was not a change or the announcement of a change in the ECB monetary strategy.  Continue reading

Fed and ECB: monetary strategy convergence is not imminent

This is my weekly column for Forbes.fr. You can find the published version here

The current dynamics of monetary policies is fascinating. 
The US central bank, the Federal Reserve or Fed, has just announced implementation at the end of the year of a policy that breaks markedly with its strategy since December 2008. The Fed finally seems to be coming out of the financial crisis that kicked off in 2007/2008. Meanwhile, the European Central Bank (ECB) is sticking to its very accommodative policy on a long-term basis. The Eurozone is unable to let go of the monetary crutches it adopted after the 2008 and 2012 crises.

The two economic giants’ policies diverge in a number of ways: Continue reading

The ECB maintains its strategy

The ECB has decided to maintain its interest rates but has changed its quantitative easing operation. The operation is extended to December 2017 at least. It will stop at this date if long term inflation expectations converge to 2%. If it is not the case the operation will continue. There is no mention related to the end of the QE. There is no tapering scenario in the current ECB strategy

The ECB’s behavior is quite simple to understand Continue reading