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ECB Move Closer To Quantitative Easing

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ECB Move Closer To Quantitative Easing

European Central Bank (ECB) President, Mario Draghi, has just completed a speech in Amsterdam in which he presented a scenario for the Bank to initiate an asset purchase program.

The key tenet of Draghi’s statement was that should inflationary conditions deteriorate further in the Eurozone then the Bank would take a pro-active approach to managing the situation. The ECB chief clearly stated that “the objective here would not be to defend the current stance, but rather to increase meaningfully the degree of monetary accommodation”

Draghi took the opportunity to stress that the Governing Council of the ECB is “unanimous” in it’s willingness to use “unconventional” methods to deal with the risks of too long a period of pro-longed deflation.

In a bid to reassure the markets, the ECB President re-stated that the Bank sees inflation slowly rising back towards the target level of 2%. This mantra however has somewhat worn thin as the ECB’s wait and see approach leads to further falls in the rate of price growth, the latest inflation reading is the lowest the zone has experienced in over four years. This has prompted many commentators, including the IMF and the US Treasury Secretary to call for some decisive action from the ECB Governing Council.

The next actionable inflation report, the Harmonized Index of Consumer Prices (HICP), from the Eurozone is due next week. The ECB has now publicly alluded to the fact that a further fall in this number would prompt it to react, there is however a growing call for action regardless of the level of this report. The ECB stance is shaping up to be that if this HICP figure rises or stays the same then no action will be taken. Impatience is growing around this stalling attitude from the ECB. In the absence of a sharp uptick in the HICP data any further failure to act from the ECB is likely to attract further global criticism.

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