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23 Nov 2015
EUR: Draghi pledges to do what we must to raise inflation - MUFG
FXStreet (Delhi) – Lee Hardman, Currency Analyst at MUFG, suggests that the relative attractiveness of the US dollar has been boosted by dovish comments late last week from ECB President Draghi.
Key Quotes
“He stated strongly that “if we decide that the current trajectory of our policy is not sufficient…we will do what we must to raise inflation as quickly as possible”. He emphasized as well that “if we conclude that the balance of risks to our medium-term price stability objective is skewed to the downside, we will act by using all the instruments available within our mandate”. The comments have reinforced expectations that the ECB will ease policy aggressively at next week’s policy meeting weighing on the euro.”
“President Draghi stated that the ECB considers their QE programme “to be a powerful and flexible instrument, as it can be adjusted in terms of size, composition, or duration to achieve a more expansionary stance”. He added as well that the deposit rate “can empower the transmission” of the QE programme, “not least by increasing the velocity of circulation of bank reserves”. The comments support our expectation that the ECB will announce a combination of easing measures.”
“A material increase in the pace of monthly asset purchases combined with making the duration of the QE programme open-ended would likely have the greatest market impact especially if combined with a deposit rate cut and a clear signal that it could still be lowered deeper into negative territory if required. Increasing total planned asset purchases by around 30% appears a reasonable base case assumption.”
Key Quotes
“He stated strongly that “if we decide that the current trajectory of our policy is not sufficient…we will do what we must to raise inflation as quickly as possible”. He emphasized as well that “if we conclude that the balance of risks to our medium-term price stability objective is skewed to the downside, we will act by using all the instruments available within our mandate”. The comments have reinforced expectations that the ECB will ease policy aggressively at next week’s policy meeting weighing on the euro.”
“President Draghi stated that the ECB considers their QE programme “to be a powerful and flexible instrument, as it can be adjusted in terms of size, composition, or duration to achieve a more expansionary stance”. He added as well that the deposit rate “can empower the transmission” of the QE programme, “not least by increasing the velocity of circulation of bank reserves”. The comments support our expectation that the ECB will announce a combination of easing measures.”
“A material increase in the pace of monthly asset purchases combined with making the duration of the QE programme open-ended would likely have the greatest market impact especially if combined with a deposit rate cut and a clear signal that it could still be lowered deeper into negative territory if required. Increasing total planned asset purchases by around 30% appears a reasonable base case assumption.”