Draghi hints at QE increase in December
October 22, 2015, 7:35 pm

Draghi did not make a direct decision about increasing the stimulus program but hinted the decision could be taken in December; his statements drove the euro down 1.8 per cent against the dollar [Xinhua]

European traders had looked to Thursday’s meeting of the ECB’s governing council in Malta for indication that a decision to increase quantitative easing and/or extend the stimulus program beyond its September 2016 deadline could come before the year.

Instead, Draghi remained tight-lipped only saying that the council engaged in an extensive discussion and was “open to a whole [range] of monetary policy instruments”.

“We are ready to act if needed,” he told reporters shortly after the council’s meeting concluded.

The governing council’s next meeting is scheduled for December 3.

The current QE plan involves the ECB buying back 60 billion euros ($68 billion) every month until the program terminates in September 2016 – a total stimulus of 1.1 trillion euros.

Draghi had hinted from the outset that the QE could be extended past the 2016 date.

The euro’s slowly regained strength against the dollar in the past few weeks coupled with rampant deflation in many of the eurozone member nations appears to indicate that the ECB stimulus regimen may have stalled through the summer, particularly as appetite for commodities dipped on news that China’s economy was slowing.

“While euro area domestic demand remains resilient, concerns over growth prospects in emerging markets and possible repercussions for the economy from developments in financial and commodity markets continue to signal downside risks to the outlook for growth and inflation,” Draghi said in Malta.

For the time being, however, the ECB on Thursday left interest rates unchanged from 11 months ago.

Last year, the ECB voted to keep interest rates at 0.05 per cent and maintain current deposit rates to below zero at -0.2 per cent.

This would mean that banks that hold money overnight at the central bank would have to pay for the service; it would, therefore, be in their benefit to encourage lending.

But these policies appear to have failed to increase the inflation rate – a critical marker of an economy’s health.

The ECB says that low inflation – or deflation – can postpone growth as consumers wait for bargain prices for goods and services. It says a two per cent inflation rate is ideal for sustainable growth.

Global stocks reacted heartily to Draghi’s comments.

In Europe, both France’s CAC 40 and Germany’s Dax surged by 2.2 per cent with London’s FTSE 100 trailing, but still up by 0.4 per cent.

The pan-European STOXX 600 also jumped over 1.9 per cent.

In the US, the Dow Jones, S&P500 and Nasdaq all opened up over 1.5 per cent on Thursday.

The euro slid from 1.133 to 1.1135 against the greenback.

The BRICS Post with inputs from Agencies