The ECB is keeping up the suspense...
While the financial community had its eyes on Mario Draghi's press conference on Thursday, he let almost nothing slip about the change in his policy, particularly in his asset-buying programme. However, he did totally discredit the rumour of a gradual halt to QE that had so upset the markets in recent weeks: "kind of a random statement made by somebody who didn't have any clue or information about that”. Clearly, the Governing Council had no desire to take any decisions last Thursday, nor pre-announce any, probably because dissension among its members must be considerable.
The introductory statement for the Governing Council meeting stresses that the ECB's policy has helped the financial markets through the post-Brexit period without too many setbacks (credit and peripheral spreads held up well). It notes that the risks to growth and inflation remain downside risks, because of weakening foreign demand. Finally, it also and especially reiterates that the ECB remains "committed to preserving the very substantial degree of monetary accommodation which is necessary to secure a sustained conver-gence of inflation" toward its target.
While there is no doubt about extending QE beyond March 2017, the issue of changing technical procedures that this underlies has obviously not been decided yet. When asked about the increasing rarity of available German bonds, Mario Draghi sidestepped the question by answering that the ECB was fully capable of carrying out its programme in its current format until March 2017. Thus, the ECB is keeping up the suspense for the Governing Council meeting on 8 December, but 17 November (publication of the Governing Council meeting minutes of this week) should also be circled on our calendars.
For the ECB, the results of the latest survey on the terms of lending to banks (published this week) are muddying the waters. The banks say they plan on easing credit terms for mortgages and consumer loans made in Q4, but plan on tightening them (slightly) on average for businesses. This trend is ex-pected to be more pronounced for SMEs than for large corporations. Note that the increase in loan applications was confirmed in Q3, for both households and businesses, and is also expected to rise in Q4. Most importantly, the survey reveals that a large majority of European banks fear that the ECB's QE will in-creasingly mean eating into future profits. The legitimate fear that the markets may have is that the QE/negative deposit rate mix may lead banks to tighten their financing terms in order to preserve their margins.
The tools deployed by the ECB are hitting some of their limits, and the choices it must make are turning out to be more and more complicated. If we think that the ECB monetary policy will remain accommodative for long time, adjustments will certainly be necessary.
Bastien Drut & Valentine Ainouz
Strategy and Economic Research at Amundi
Valentine AINOUZ, Bastien DRUT