Now, the market is well aware that measures taken while likely leading to increase the ECB balance sheet back to the 2012 levels, will not aim to achieve this goal as Draghi’s words hinted in previous press conferences. Now we all know that the Board is ready to implement extra non-conventional measures, should dwindling price levels continue to drag on in future.
Action will have to wait until figures show beyond any doubt economic performance enters into dangerous territory. In other words, the ECB is unlikely to implement new measures unless the situation gets nasty. Investors betting on an aggressive mood in fostering growth feel deeply disappointed. Banks hoping to transfer low-quality assets to the ECB will be highly disillusioned.
Next month, the ECB will likely launch its ABS buying programme. French Governor Noyer has secured direct intervention of national central banks in this operation, fearing a repetition of the covered bonds fiasco, purchases amounting to less than 5 billion. But prospects of a full-fledges QE involving sovereign securities have been shelved. Right now, the ECB might only consider the possibility of enlarging the scope of eligible assets by introducing corporate bonds.
The ECB seems to downplay its role on putting the economy back on track. It casts a doubtful view on the ability its low rates might have in invigorating demand and credit. Europe fails to have large capital markets, like the US, extremely sensitive to interest levels. Funds here are channelled by the banking system. As long as these entities are actively engaged in cleaning-up their balance sheets, there is little hope they might increase their exposure to enterprises and households. Stagnation plus low price levels are likely to persist.