Mario Draghi backs down

Mario Draghi has surprised markets by cutting rates by less than expected, and extending, rather than increasing, the QE programme. Is it a sign of economic recovery, or complacency?


Has Mario Draghi bottled it?

What happened?

He also extended the ECB's QE programme by six months, so that it will end in March 2017, rather than September 2016 (though it could continue beyond then). And he announced that the ECB would consider broadening the type of assets that it buys, to include local and regional government debt, rather than simply national bonds.

How have the markets reacted?

The euro quickly increased in value, while expected bond yields on eurozone government debt have increased.

So, why did Draghi back down?

Draghi pointed to "subdued growth prospects in emerging markets and moderate global trade, the necessary balance sheet adjustments in a number of sectors and the sluggish pace of implementation of structural reforms".

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Is the ECB split on QE?

Last month, Sabine Lautenschlaeger, a member of the ECB's executive board stated that she saw "no need for further monetary-policy measures, especially not for an expansion of the asset-purchase program". Instead, she argued that, "We should give the numerous and, all-in-all formidable, monetary-policy efforts time to show their full effects".

Estonia's Central Bank governor Ardo Hansson also stated in October that "we should be patient and give these policies a bit more time to have an effect".

Dr Matthew Partridge

Matthew graduated from the University of Durham in 2004; he then gained an MSc, followed by a PhD at the London School of Economics.

He has previously written for a wide range of publications, including the Guardian and the Economist, and also helped to run a newsletter on terrorism. He has spent time at Lehman Brothers, Citigroup and the consultancy Lombard Street Research.

Matthew is the author of Superinvestors: Lessons from the greatest investors in history, published by Harriman House, which has been translated into several languages. His second book, Investing Explained: The Accessible Guide to Building an Investment Portfolio, is published by Kogan Page.

As senior writer, he writes the shares and politics & economics pages, as well as weekly Blowing It and Great Frauds in History columns He also writes a fortnightly reviews page and trading tips, as well as regular cover stories and multi-page investment focus features.

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