ECB: 'Hawkish twist' from Mario Draghi disappoints markets

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A “hawkish twist” from Mario Draghi sent the euro up against the dollar today when the president of the European Central Bank surprised many traders by saying that the question of extending its money printing programme was not even discussed at the ECB’s latest meeting.

As expected the ECB kept all its key interest rates on hold and said it would maintain its money printing programme at €80bn a month until next March.

But Mr Draghi seemed to downplay the chances of the stimulus programme being broadened, despite inflation in the single currency bloc remaining stubbornly low.

“We discussed the assessment of the economy and we discussed the broad macroeconomic projections but we didn’t discuss anything else” Mr Draghi said in his press conference.

The euro rose 0.8 per cent to a two-week high against the dollar of €1.1325.

Against sterling the single currency strengthened to £0.849.

Eurozone sovereign bond yields ticked up and stock markets slipped.

The German and French stock markets closed down 0.72 per cent and 0.34 per cent respectively.

Joshua Mahoney at IG described it as a “hawkish twist” from the ECB and said market expectations had “run away with themselves”.

Some had been expecting Mr Draghi to announce an extension of QE of up to nine months and possibly an widening of the range of eligible bonds for purchase.

“The ECB seems to be in no hurry to go wild and decide on new bold measures” said Carsten Brzeski of ING.

However, several analysts said that more ECB easing was still ultimately more likely than not.

“We still expect the Bank to extend its Asset Purchase Programme to September 2017 and now see this being announced in December if not before” said Jennifer McKeown of Capital Economics.

“We still see a good chance that as eurozone price pressures fail to pick up, large monthly asset purchases may ultimately be needed”.

Annual consumer price inflation in the eurozone was 0.2 per cent in August, the same rate as in July and still well below the ECB’s target of just below 2 per cent.

Core inflation eased back to 0.8 per cent, down from 0.9 per cent in July.

In its latest forecasts the ECB expects inflation to rise to 1.2 per cent in 2017 and 1.6 per cent in 2018.

Mr Draghi did say the ECB’s Governing Council had instructed internal committees “to evaluate the options that ensure a smooth implementation of our purchase programme” reflecting a scarcity of bonds that fall within the ECB’s eligibility rules.