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5 Dec 2014
ECB's Draghi is playing hardball - RBS
FXStreet (Bali) - Richard Barwell, Senior European Economist at RBS, notes that President Draghi is playing hardball, hoping that doing nothing in today's ECB meeting would increase the chance of doing enough tomorrow.
Key Quotes
The Governing Council decided to keep the key ECB interest rates unchanged at the December 2014 meeting. There were no major policy announcements: no tweaks to the TLTROs and no expansion in the scope of the asset purchase programme to include, say, corporate bonds – as we had expected (The dress rehearsal | ECB Preview).
The lack of action today may seem curious or even a cause for concern given that President Draghi pledged less than a fortnight ago that ‘we will do what we must to raise inflation and inflation expectations as fast as possible, as our price stability mandate requires of us.’ However, we think that the two are perfectly consistent.
Our sense is that President Draghi and his key lieutenants have concluded that the tactic of unveiling another minor iteration in the policy response this month might have been counterproductive because that would then have led to arguments for further delay before taking the big decision on QE (on account of having to wait to see if the new iteration had done the trick).
Instead, the plan appears to be wait a little longer in the hope of demonstrating that the current response is not remotely sufficient given the mandate sufficient support for a more muscular response. In short, President Draghi is playing hardball, where he hopes that doing nothing today increases the chance of doing enough tomorrow.
Key Quotes
The Governing Council decided to keep the key ECB interest rates unchanged at the December 2014 meeting. There were no major policy announcements: no tweaks to the TLTROs and no expansion in the scope of the asset purchase programme to include, say, corporate bonds – as we had expected (The dress rehearsal | ECB Preview).
The lack of action today may seem curious or even a cause for concern given that President Draghi pledged less than a fortnight ago that ‘we will do what we must to raise inflation and inflation expectations as fast as possible, as our price stability mandate requires of us.’ However, we think that the two are perfectly consistent.
Our sense is that President Draghi and his key lieutenants have concluded that the tactic of unveiling another minor iteration in the policy response this month might have been counterproductive because that would then have led to arguments for further delay before taking the big decision on QE (on account of having to wait to see if the new iteration had done the trick).
Instead, the plan appears to be wait a little longer in the hope of demonstrating that the current response is not remotely sufficient given the mandate sufficient support for a more muscular response. In short, President Draghi is playing hardball, where he hopes that doing nothing today increases the chance of doing enough tomorrow.