Draghi’s lack of stimulus targets fails to impress

 
Chris Papadopoullos
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THE EURO jumped in value against the dollar yesterday as European officials failed to specify the size of their asset purchases, disappointing investors hoping for a substantial programme to try to stimulate the economy.

The European Central Bank (ECB) said its plan to purchase private debt would begin over the next three months and would last for two years.

No size was mentioned, but the outstanding stock of the specified assets is just shy of €1tn (£780bn).

Riskier assets are eligible for purchase including Greek and Cypriot assets rated “junk”.

However, the euro jumped to 0.5 per cent against dollar on the news reflecting a lack of confidence that the programme will be large enough.

“Investors had hoped that the ECB would step-up stimulus plans after the recent weakness in both growth and inflation data, either by announcing a very large amount of purchases, or the addition of sovereign debt purchases.” said economist Azad Zangana from Schroders.

Estimates put inflation in the year September at 0.3 per cent and recent surveys conducted by the European Commission show inflation expectations expectations deteriorating.

Deflation is now a serious risk for the currency union with some economists fearful of a repeat of Japan’s lost decade of low growth and falling prices.

A further fall in inflation expectations is expected to prompt the ECB to purchase government bonds as, given their larger stock, it would make the potential size of the programme virtually unlimited.

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