This afternoon, the ECB was in the limelight. The purchases continue at €30 billion until the end of September 2018. They will continue to provide liquidity ‘for an extended period of time’. Interest rates remain at 0%.
How Does This ECB Decision Affect The Dax?
It’s a pretty dovish stance from the central bank which is great for the Dax30. Conditions allow for further bullish momentum. As a result, the DAX 30 has broken 13,000 again.
Liquidity is still there, conditions are still warm and cosy for buyers as money continues to be pumped around, with no real danger of the increased costs for now. At today’s meeting, which was held in Riga, the Governing Council of the ECB undertook a careful review of the progress towards a sustained adjustment in the path of inflation, also taking into account the latest Eurosystem staff macroeconomic projections, measures of price and wage pressures, and uncertainties surrounding the inflation outlook.
If the DAX 30 can defend this for the rest of the session, without reversing and catching us out, then the picture would be bullish and the swings are much easier to read. Currently, we favour the longs.
At the same time, however, it was promised to keep key interest rates at their current level until at least the summer of 2019. This leaves the ECB the money still awhile turned up. “Slightly more aggressive on the bond-buying program and soft on interest rates is a very fine balance, with ECB President Mario Draghi trying to keep markets in check and avoid sell-offs,” commented market analyst Neil Wilson of Markets.com.
Asset Purchase Programme
The ECB have announced that it would phase out its multi-billion dollar bond purchase program and phase APP out by the end of the year.
First, as regards non-standard monetary policy measures, the Governing Council will continue to make net purchases under the asset purchase programme (APP) at the current monthly pace of €30 billion until the end of September 2018. The Governing Council anticipates that, after September 2018, subject to incoming data confirming the Governing Council’s medium-term inflation outlook, the monthly pace of the net asset purchases will be reduced to €15 billion until the end of December 2018 and that net purchases will then end.
Liquidity Provisions
ECB President Mario Draghi is trying to keep markets in check and avoid sell-offs. Being slightly more aggressive on the bond-buying program and soft on interest rates is a very fine balance.
Second, the Governing Council intends to maintain its policy of reinvesting the principal payments from maturing securities purchased under the APP for an extended period of time after the end of the net asset purchases, and in any case for as long as necessary to maintain favourable liquidity conditions and an ample degree of monetary accommodation.
Interest Rate Decision
In summary, the ECB has promised to keep key interest rates at their current level until at least the summer of 2019.
Third, the Governing Council 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 at least through the summer of 2019 and in any case for as long as necessary to ensure that the evolution of inflation remains aligned with the current expectations of a sustained adjustment path.
Today’s monetary policy decisions maintain the current ample degree of monetary accommodation that will ensure the continued sustained convergence of inflation towards levels that are below, but close to, 2% over the medium term.
The President of the ECB will comment on the considerations underlying these decisions at a press conference starting at 14:30 CET today.
