Thursday’s European Central Bank policy meeting was a masterclass from President Mario Draghi in how to ride two horses at once: calling time on quantitative easing while keeping a dovish tone.
The bond-buying program will end this year — but the governing council paired this with a clear message that interest rates won’t rise before the end of summer next year.
Draghi’s emphasis that significant stimulus is still needed and that the central bank will keep all options open to avoid any tightening of liquidity only drums home the message that the ECB is still in dove mode. The hawks have been thrown some red meat — QE will end this year — but they have had to agree that rates will remain unchanged for at least a further 15 months.
Markets reacted positively: yields across all European bond markets — with the slightly odd exception of Greece — fell, with Italy leading the decline. The euro weakened one percent against the dollar.
Draghi’s term ends at the October 2019 meeting. By pledging to keep rates lower over a longer timeframe, he will stay firmly in the driving seat until that day.
It is very possible Draghi may never preside over a rate hike. His successor is unlikely to have that luxury. Two of his possible replacements — Bundesbank President Jens Weidmann and Banque de France Governor Francois Villeroy de Galhau — both recently called for rates to rise in the first half of next year.
For now, though, Draghi has managed to keep both doves and hawks happy. Europe might miss him when he goes.
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