Clueless Draghi leaves rates the same while hinting that QE may continue on indefinitely
The fall of the U.S. dollar since the beginning of the year has suddenly left ECB head Mario Draghi to have no answer to the rising strength of the Euro currency. ¬†And as such on Sept. 7, the man who introduced negative interests to the Western financial system is now backtracking on his promise to start downsizing the central bank’s balance sheet, and hinted earlier today that bond buying may continue on indefinitely past the December deadline.
At today‚Äôs meeting the Governing Council of the ECB decided that the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will remain unchanged at 0.00%, 0.25% and -0.40% respectively. The Governing Council expects the key ECB interest rates to remain at their present levels for an extended period of time, and well past the horizon of the net asset purchases.
Regarding non-standard monetary policy measures, the Governing Council confirms that the net asset purchases, at the current monthly pace of ‚ā¨60 billion, are intended to run until the end of December 2017, or beyond, if necessary, and in any case until the Governing Council sees a sustained adjustment in the path of inflation consistent with its inflation aim. The net purchases are made alongside reinvestments of the principal payments from maturing securities purchased under the asset purchase programme. If the outlook becomes less favourable, or if financial conditions become inconsistent with further progress towards a sustained adjustment in the path of inflation, the Governing Council stands ready to increase the programme in terms of size and/or duration. –¬†European Central Bank
What is perhaps most interesting before Super Mario announced his intentions regarding interest rates and QE is that just yesterday, the CEO of Deutsche Bank cautioned Draghi that the ECB’s policies were creating bubbles in numerous markets, and that things were beginning to get a little dangerous for the banks and the financial system.
Bloomberg reports that the Deutsche Bank¬†Chief Executive Officer¬†John Cryan¬†called for an end to the era of cheap money in Europe, saying that¬†the prolonged period of rock-bottom interest rates is starting to inflate asset bubbles and putting the bank at a disadvantage to U.S. rivals.
‚ÄúWe are now seeing signs of bubbles in more and more parts of the capital market where we wouldn‚Äôt have expected them,”¬†Cryan said, adding that the interest-rate policy has been partly responsible for the decline in earnings at European banks.
‚ÄúI welcome the recent announcement by the¬†Federal Reserve¬†and now also from the ECB that they intend to gradually bring their loose monetary policy to an end.‚ÄĚ –¬†Zerohedge
Like with the Fed or the Bank of Japan, the use of artificial stimulus and cheap money has been the only real thing sustaining markets ever since the 2008 Financial Crisis and subsequent Great Recession. ¬†And since none of these economies have truly recovered outside of equities and housing, the heads of these central banks know full well that once they remove the punch bowl from the banks, the party is completely over.
Kenneth Schortgen Jr¬†is¬†a writer for¬†The Daily Economist,¬†Secretsofthefed.com,¬†Roguemoney.net, and¬†Viral Liberty, and hosts¬†the popular¬†youtube podcast¬†on Mondays, Wednesdays and Fridays.¬†Ken can also¬†be heard Wednesday afternoons giving an weekly economic report on the¬†Angel Clark radio show.