As expected, the GC decided to leave its monetary policy unchanged and restated its commitment to continue its asset purchase programme at least until September 2016, until we see a sustained adjustment in inflation consistent price stability, ie, the medium-term outlook below, but close to, 2%. ECB President Draghi noted that the GC was closely monitoring developments in financial markets. He said that recent market uncertainties had not changed the economic outlook for now. Should the situation change, particularly in financial markets, and threaten the accommodative stance of monetary policy due to unwarranted tightening and price stability, the GC would stand ready to act and use all available tools in its mandate. This echoes statements made by some other board members during the last few weeks that further monetary support would not be ruled out should the outlook deteriorate.
President Draghi noted that the modest growth trend had continued in line with expectations. Growth was supported by expansionary monetary policy and by the stabilisation of oil prices at a low level. Although the outlook is still for a broadening of the economic recovery, especially owing to the transmission of easy monetary policy to the economy, the ECB is of the view that some headwinds are still dragging growth down, in particular the slowdown in emerging markets, balance sheet adjustments and slow implementation of structural reforms. On monetary policy, the GC is of the view that the measures decided over the last year, including injections of liquidity through TLTRO and QE, have been implemented successfully and have enabled a re-anchoring of inflation expectations and an improvement in financial conditions which are conducive to improving the growth outlook, under the assumption that these measures will be fully and firmly implemented.
"The ECB will indeed continue its monthly asset purchases at the same pace until September 2016, and probably even longer as we believe the increase in inflation will likely be slower than the ECB currently projects. Moreover, it is believed that, the chance that additional measures will be announced by the end of this year is not negligible and will depend on financial market developments, especially in conjunction with upcoming discussions about the third Greek bailout. During the Q&A, President Draghi denied there had been no frontloading of the asset purchases, although this has slowed in July as liquidity started to decline", noted Barclays.
