ECB surprises the market by not extending QE

As expected, today’s ECB announcement provided no further interest rates cut, and the press conference led by Mario Draghi, President of the ECB, was very much awaited. 


And Draghi managed once again to surprise the market, but this time, unlike in the past, Draghi handed out no presents. He clearly indicated during his speech that although there is a committee entrusted with the task to reviewing all the options available for the QE the ECB is satisfied for now with the development of the current QE program. Draghi considers the rising loans to private households and corporations as well as the economic stimuli shifted away from export to consumption as important indicators for the success of the current QE program. For this reason, a further extension of the Quantitative Easing Program has not been discussed and such a decision is not under consideration for the time being. Therefore, the European stock markets felt sharply as many traders were expecting an extension or, at least, some indications.

The December Outlook will be important

Draghi reduced the inflation as well as the GPD targets for 2017 and 2018. However, an extension of the QE program may be first considered once the forecasts for the month December regarding the inflation and GPD targets are released. Draghi replied to the question of how to introduce a QE extension, and if stock purchases may be a potential means in a reserved way by saying that this has not been discussed. In this way, the ECB keeps all its options open.

Relief for the SNB

Draghi reaffirmed the need to keep the interest rates low in order to reinforce the process of economic recovery. For the SNB that meets next week this means that no action on interest rates is required for the moment. The ECB reticence with regard to the QE might also ensure that – at least – the pressure on the euro and consequently on the EUR/CHF will not increase further. This is good news for the SNB, since it had to announce on Wednesday a new absolute record high in foreign exchange reserves of CHF 626,6 billion. The EUR/CHF is likely to stay within a trading range between CHF 1,08 and 1,10 per euro.

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