Today, it was the European Central Bank’s (ECB) turn.
ECB President Mario Draghi and ECB policymakers met today and delivered what the markets were expecting, but indicated more goodies (depending on your perspective) may be on the way.
While they talked a good game – maintaining confidence in the growth outlook - their nervousness with respect to that growth outlook was quite apparent.
And justifiably so. Europe, in their view, remains deeply susceptible to the headwinds of the current global trade and growth slowdown. They see the headwinds and acknowledge them accordingly.
While they didn’t change their policy position or provide any further clarity with respect to specific measures that they are planning on taking, they clearly indicated their level of concern and willingness to take proactive measures to counteract these headwinds.
Forward guidance, of course, would be the first tool deployed, by the summer, I expect.
In addition, it was clear that the ECB is very much focused on banks in meaningful and remedial measures such as tiering of excess reserves, which may be in the offing.
Finally, a liquidity measure like targeted longer-term refinancing operations (TLTROs)1 are very much in the cards in the same time frame.
The bottom line is that, unlike in the U.S., where growth is slow but still decent, Europe faces significant headwinds and the ECB is clearly heading down the dovish path in a hurry.
All that being said, I expect the pressures on the ECB to actually ease as the real-time data continue to indicate that things are stabilizing in China, which remains the biggest driver of European economic health. Kicking the Brexit can down the road should also help in this regard.
The ECB may be panicking today but things look somewhat better on a go-forward basis, in my view.
- ^The targeted longer-term refinancing operations (TLTROs) are Eurosystem operations that provide financing to credit institutions for periods of up to four years. They offer long-term funding at attractive conditions to banks in order to further ease private sector credit conditions and stimulate bank lending to the real economy. The TLTROs, therefore, reinforce the ECB’s current accommodative monetary policy stance and strengthen the transmission of monetary policy by further incentivizing bank lending to the real economy. Source: European Central Bank web site.
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