The head of the European central Bank (ECB), Mario Draghi
The stock and currency markets reacted sharply to the new measures of the European Central Bank on monetary stimulus. The euro rose and the indices went down. Investors overestimated the willingness of the ECB to sharp steps
The head of the European Central Bank (ECB) on Thursday announced the expansion of the program of monetary stimulus. Firstly, was lowered base interest rate from 0.05 to 0%, the interest rate on loans – from 0.3 to 0.25% and the deposit rate – from minus 0.3 to minus 0.4%. The decisions will come into effect from 16 March.
the policy of quantitative easing program (QE) has been increased from € 60 billion a month to € 80 billion. Now in the asset list for the purchase will further include Eurobonds issued by non-bank institutions eurozone . Adjusted program will be operational from April.
The regulator also announced the launch in July 2016 a series of four targeted long-term bank refinancing operations (TLTRO II) with a maturity of four years.
What the ECB has gone on expanding incentive policies?
The European Central Bank has launched a program of quantitative easing, following the example of the US Federal Reserve in January 2015. Its purpose – to satisfy the European economy liquid funds in order to stimulate investment in the production and increase lending. Thus the head of the ECB Mario Draghi wants to eliminate the major threats to the European economy – an unacceptably high level of unemployment, weak credit growth and the risk of deflation (the last time inflation reached the target of 2% in 2013)
For this purpose, the ECB. made several interrelated steps: reduction in interest rates (it makes unprofitable deposited funds on deposits and reduces the cost of credit), the redemption of asset backed bonds (debt holders of European countries were primarily banks) and a long-term target bank refinancing (which should also facilitate loans to the real economy ). The volume of funds injected directly into the economy of resources until September 2016 was to make € 1,1 bln. The flow of cash was to stimulate the growth of business activity, which would lead to the creation of new jobs, increased consumer demand, and after him, and the acceleration of inflation to an acceptable level.
The decision to deepen and expand the range of measures used shows that the ECB We have not been able to achieve the planned results. Indeed, inflation in the eurozone was a modest 0.3% in January.
What will happen to the European markets?
Immediately after the news about the new decisions of the ECB European stocks jumped up. The German stock index DAX rose 1.69%, the Italian FTSE MIB – by 2.67%, the British FTSE 100 index rose by 0.7%. However, at the end of trading indicators went into the red zone: 21:20 MSK on the FTSE 100 lost 1,78%, DAX – 2,31%, FTSE MIB – 0,5%. Investors initially overestimated Draghi steps, and then just as quickly disappointed – had expectations from the ECB are too big and his head, which made it clear that will not stop at nothing just to his course on the injection of liquidity into the economy bore fruit. A certain skepticism provoked and confidence Draghi as to what interest rates will remain at the set on Thursday at a very long time, it is possible that after the end of quantitative easing policy.
Markel Alexandrovich of Jefferies explained disappointing markets and ” strange absence of “details on the measures taken by the ECB. For example, he notes that even though the program of quantitative easing by buying bonds and expanded by € 20 billion, but the composition of these Eurobonds remains unclear. For example, Draghi did not specify what kind of non-bank institutions, issuers of paper that will be bet in Frankfurt. “Non-obviousness in the details and the deferred period, the entry into effect of the new measures may blunt the effectiveness of the announced steps and confuse markets”, – quotes Alexandrovich The Telegraph
In the long term, things are not so bleak, some analysts believe.. “In the end, what they do, will support the markets. They are trying to pump more money into the system, and it usually helps. Part of the problem is that in the last couple of months in the US regulator goes the opposite way, and people do not know how to deal with it. We are on an unknown territory “- quoted by The Wall Street Journal Norma Bursmu of the Templeton Global Equity Group
How will this affect the euro and the dollar.?
Immediately after the publication of news about the ECB’s decision to lower the rates and the expansion of the program of quantitative easing, the euro fell against the dollar by 1%, from $ 1.0975 to $ 1.0836, but after the words Draghi that he sees no need for further reduction of interest rates, the euro rose against the dollar to $ 1,1137
«it is said that the euro as a whole feel good themselves” -. says RBC analyst Metallinvestbank Sergey Romanchuk.
What are the prospects are waiting for the euro against the dollar, according to him, to say definitely quite difficult. “I personally feel that the euro against the dollar may continue to grow if the rate cut was the last of the ECB and, if measures taken to help eliminate the threat of deflation and ensure transition to a normal monetary policy”, – he said. In any case, a significant fall of the euro, even in the case of appeal reversed the trend, he is no longer waiting. Most likely, the euro could consolidate at current levels or continue to grow.
How will this affect the euro rate against the ruble?
The euro in afternoon trading on the Moscow Stock Exchange exceeded 80 rubles. It peaked at 19:25 MSK – the euro was trading at 80.3 rubles, which is almost 4. Rub. above the level reached immediately after the announcement of the new ECB decisions. Dollar to 19:25 MSK rose to 71.89 rubles. – 2 rubles. above the level at 16:00
«euro growth on four rubles for four hours -. that influence today’s ECB decision on interest rates. The ECB took enough unexpected solutions for the market, although rates are not significantly changed “, – said Romanchuk
The ratio of the euro against the ruble is determined by a pair of dollar-ruble, he said.. The ratio of the dollar against the ruble, in turn, is mainly determined by the price of oil. On Thursday, a barrel of benchmark Brent slipped cost from $ 40.24 to $ 39.70. “It is possible that the dollar against the ruble has outlined a medium-term at least in the region of 70 rubles. per dollar, and whether the dollar will be cheaper, it is difficult to say “- like an expert
The euro-dollar less volatile compared with a pair of dollar-ruble, so the euro against the ruble will be determined by how it will change. dollar to ruble sums Romanchuk.
Bloomberg quoted chief economist ING Group in Russia and CIS Dmitry Polevoy, who believes that ECB action will support oil prices and emerging-market currencies, including the ruble.
According to RBC chief economist of the Eurasian development Bank, Yaroslav Lissovolik, the ruble will continue to strengthen the euro against the background of the news from OPEC.
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