THE EUROPEAN Central Bank (ECB) took no further action this month, holding off on further easing despite the news that inflation had fallen to a four-year low in March.
However, ECB President Mario Draghi revealed that the governing council had discussed the possibility of both negative deposit rates and quantitative easing (QE) this month, giving perhaps the clearest signal yet that policymakers are ready to ease further.
Official statistics released earlier this week showed that inflation had dropped to only 0.5 per cent in March, the lowest since late 2010. Draghi stressed that much of the low inflation was due to falling energy prices, and referred to prolonged stagnation as his “biggest fear”, which is “to some extent reality”.
“It was a classic performance really – Draghi was straining every sinew to sound as dovish as he could – but the more times they do that as inflation fails to pick up, the more that they will lose credibility,” said Nick Beecroft, chairman of Saxo Capital Markets.
However, he added that action in the next few meetings was still possible: “Draghi revealed discussions of QE and negative rates – it sounds to me like this was closer than last month, and no surprise after the tick down in inflation.”