Investor expectations regarding this month’s European Central Bank policy session were wrong, the bank’s Vice President Vitor Constancio said Friday.
In an interview to the CNBC, Constancio said, “We have to recognize that the markets got it wrong in forming their expectations.”
“They did indeed have higher expectations than were there and that’s why they reacted like they reacted but that was not our intention.”
In its latest attempt to kindle inflation in the euro area and underpin feeble growth, the ECB on Thursday cut its deposit rate by 10 basis points to -0.30 percent and extended its asset purchase programme until at least March 2017. The bank also broadened its asset purchases to include regional and local government bonds among other measures.
The latest measures were less than what markets were looking for and the euro strengthened after the ECB announcement and stock markets fell.
Investors had expected a bigger cut to the deposit rate and an enhancement in the monthly asset purchases of EUR 60 billion to as much as EUR 80 billion. Some analysts had also predicted that the bank will introduce a two-tier deposit rate to support the negative deposit rate.
Market expectations were hyped by repeated affirmations from ECB President Mario Draghi and fellow Governing Council members since the October 22 policy session that the bank was ready to do everything to bring euro area inflation to its target of ‘below, but close to 2 percent’.
Constancio clarified that ECB policymakers were not talking about “a new type of QE2 or something like that”.
“The fault lies with the markets,” he added.
“They should have thought in our wording that in October where we said we are going to reassess the degree of accommodation, so it was all the time about recalibration, it is not about a big change in policy,” Constancio said.
The material has been provided by InstaForex Company – www.instaforex.com