ECB don’t shoot just yet, but the finger is on the trigger

4th December 2014 By: Ranko Berich

ECB Press Conference – 04/12/14

Mario Draghi and the ECB may have failed to make a firm move towards expanding the pace and scope of their asset purchasing programme, but after a series of hints, the writing is now on the wall that the ECB will step up its easing measures in the near future. While no new measures were announced, Draghi used his strongest language yet in describing the ECB’s plans, stating flat out that the ECB intended to increase its balance sheet.

Ahead of the conference, the euro had reached its weakest point against USD since the depths of the eurozone crisis, highlighting the market expectations for additional easing. Sovereign assets and corporate bonds are the most obvious items the ECB could add to its shopping list. Bond market reactions to the press conference suggest that markets were expecting a far firmer commitment to action on these.

The most significant part of the press conference was the official statement that the Governing Council would reassess the asset purchasing situation early in 2015. Markets now have a fairly firm timetable for when the ECB will need to admit that inflation is showing no signs of improvement.

Unless a monetary miracle occurs and inflation improves drastically, by the time of the first Governing Council meetings next year, the ECB will have little choice but to act.