James Athey from Aberdeen Asset Management, thinks Mario Draghi has managed to pull off a delicate balancing act - warning of the risks ahead for the eurozone, while reaffirming the effectiveness of QE in the real economy six months into the scheme. Once again President Draghi has been forced back onto the high wire to perform a delicate balancing act with his communication to strategy. On the one hand, he doesn’t want to kill off confidence in the eurozone which has shown remarkable resilience in the face of weakening global sentiment and an increase in volatility.
But he also needs to acknowledge that downgrades to global growth forecasts, the tightening of financial conditions and falling oil prices make it increasingly unlikely that the ECB will meet its inflation target over the medium term. The central bank has already downgraded its projections for inflation which made it essential that he comfort markets by saying the ECB stands ready to do more if necessary. He didn’t say it outright but there was more than a whiff of ‘whatever it takes’ from the press conference. “The ECB will probably have to extend their current QE programme but won’t be able, nor would want to, imminently. It took Draghi a great deal of effort to win support to launch QE in the first place, extending it will require time and further a deterioration in the outlook, before we see any action.”
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