Carsten Brzeski, analyst at ING explained that the ECB’s measures were clearly triggered by a significant downward revision of the inflation projections and continued fears of deflation or at least second-round effects from negative inflation rates.
Key Quotes:
“The ECB staff projections showed an expected sub-potential recovery of the EUroozne going into 2018, with GDP growth forecasted at 1.4% (from 1.7%) in 2016, 1.7% (unchanged) in 2017 and 1.8% in 2018. Risks are still tilted to the downside. As regards inflation, the ECB staff had to pay a tribute to the further drop in oil prices and the strengthening of the euro since the December forecasts. Here, ECB staff now expects inflation to come in at 0.1% (from 1.0%) this year, 1.3% (from 1.6%) in 2017 and 1.6% in 2018. It was this continued undershooting of the ECB’s inflation target as well as the ECB’s determination to never give up, as Mario Draghi said himself, which led to today’s set of new measures.
In addition to the announced measures, the ECB gave a strong forward guidance, stressing that interest rates were not only to remain “at present or lower levels for an extended period of time” but also that rates would remain low “well past the horizon of [the ECB’s] net asses purchases”. In short, rate will remain low for the foreseeable future.”
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