More than just more rate cuts
What Draghi did attempt to do, however, was to steer markets away from expectations of further cuts to interest rates as a measure of central bank efficacy – something to which markets didn’t really seem to take too kindly to.
In fact, much of the ECB president’s commentary seemed to be an attempt dispel any worries that the ECB had run out of policy tools.
When asked how he would respond to the concerns raised most recently by the Bank of International Settlements that markets have begun to question central bank efficacy.
“The best response is the list of measures we announced today,” he said. “It is a fairly long list of measures and each one is designed to have the maximum impact on boosting the economy and the return to price stability. So, we have shown we are not short of ammunition.”
Another criticism that has been levelled at the Bank is that it does not have the willingness to act in sufficient magnitude, said Draghi, a criticism also neutered by the measures announced on Thursday.
He also attempted to pour cold water on those critics who suggest that even with both the willingness to act and the increased measures, bank efficacy is waning.
According to Draghi the impact of the policies thus far employed are proven not only by the growth data beginning to come through, but also the changes to credit flows and, in particular the narrowing of credit spreads between the core and the periphery.
“It has translated into a growth recovery. It is not spectacular but it is there. It is gradual and has been continuing now for several months. We haven’t reached our inflation target but it is going to take time and it would be foolish to think we will get back to 2% inflation with an economy that hasn’t recovered yet.”
Some, like Russell Investments senior investment strategist, Wouter Sturkenboom remain less convinced than Draghi that there is much more the ECB can do.
“Taking everything together today’s announcement was really as much as we could expect and hope for. At the margin it will help support growth and inflation but probably does not make a meaningful difference. Looking ahead, we think the ECB from here on can tinker on the edges but probably can’t meaningfully change the policy mix. For all intents and purposes it has shot its last big bullet.”
The big question from here is whether or not it will be enough to set the region’s financial bones sufficiently so that they can begin once more to knit together. And, prehaps a more pressing point, will markets be prepared to wait?
