Mario Draghi went some way to taming bear markets yesterday by hinting that the European Central Bank (ECB) will ramp up its trillion-euro stimulus package as soon as March.
The ECB chief said that, with “downside risks” increasing, it will be “necessary to review and possibly reconsider our monetary policy stance at our next meeting”. The dovish message pushed up markets throughout the continent.
The FTSE rose 1.77 per cent to 5,773.79, while the German Dax rose a further 1.94 per cent to 9,574.16 points, building on earlier gains. The French Cac 40 also climbed another 1.97 per cent. The euro plummeted almost a full cent against the dollar, falling as low as $1.08 from $1.09 before recovering to $1.084.
“Draghi once again saw the equity markets confirm his ‘super’ status as they jumped almost as soon as he started his speech. The emphasis shifted from ‘whatever it takes’ to ‘no limits’ where action is concerned,” said Alastair McCaig, a market analyst at IG.
Draghi, dubbed “Super Mario” by some investors, joins a number of central bankers who have started the year by hinting at more monetary stimulus. Bank of England governor Mark Carney this week said now was not the time to raise interest rates, sending the pound to its lowest value against the dollar since 2009.
James Bullard, a US rate-setter, warned last week that the US central bank had to tread carefully as inflation expectations fell to their lowest for seven years – just one month after he backed the Federal Reserve’s move to raise interest rates.
Experts expect the ECB’s €1.5 trillion (£1.15 trillion) asset purchase programme, designed to inject cash into the economy, to be ramped up. The programme, also known as quantitative easing, was extended by six months to March 2017 in December.
“In light of dovish rhetoric from Draghi we have pulled forward the timing of that forecast for further easing to March,” said Andrew Cates at RBS. Draghi opted to keep the interest paid on deposits at minus 0.3 per cent, which is expected to be cut again. He also confirmed a decision to keep the ECB’s benchmark rate at 0.05 per cent.