After slashing the deposit rate to -0.4 per cent last week, Mr Draghi indicated he did not anticipate pushing rates deeper into negative territory, according to Perpetual head of investment strategy Matt Sherwood.
“For a man who prides himself on his precise oratory skills and his ability to jawbone markets, it almost beggars belief that he would make another communications error, even if you classify the overnight market reaction to the comment as excessive,” Mr Sherwood said.
In response to Mr Draghi’s comments, the euro surged 3 per cent and bond yields also rose. Mr Sherwood said this sparked a large sell-off in regional equity markets across Europe.
AMP Capital chief economist Shane Oliver said the ECB effectively “shot itself in the foot”.
However, “while Draghi’s comments were perhaps too heavy handed and unhelpful, it’s likely markets will ultimately settle down and see the ECB’s move as very positive,” Mr Oliver said.
The ECB “more than delivered” on its easing package, he said. Its monthly quantitative easing program was increased from €60 billion to €80 billion per month and will now include the buying of corporate debt.
A new financial program for banks – termed targeted longer-term refinancing options (TLTRO) – will also commence in June 2016, with an interest rate of approximately 0.4 per cent.
Pimco’s head of portfolio management, Germany, Andrew Bosomworth, said the ECB’s policy move sent three key messages.
First, he said, negative interest rates as a monetary policy tool are “effectively exhausted”.
Secondly, asset purchases and credit easing will do the “heavy lifting” of policy stimulus hereon.
Finally, the ECB, according to Mr Bosomworth, is now more focused on the domestic credit channel, rather than a depreciating euro, to “kick start” growth.
“The ECB’s inflation forecasts of 0.1 per cent for this year, 1.3 per cent in 2017 and 1.6 per cent in 2018 are a sobering reminder more stimulus might be needed,” he said.
“The economic recovery remains vulnerable to negative external shocks, and we would not be surprised if more easing were needed.”
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