State Street Comments on European Central Bank Monetary Policy Decision

In reaction to today’s European Central Bank (ECB) Monetary Policy Committee (MPC) meeting, Brendan Lardner, active fixed income portfolio manager at State Street Global Advisors and Antoine Lesné, head of EMEA strategy and research for SPDR ETFs, offer their views.

Lesné comments, “As expected the ECB kept is main refinancing rate unchanged. The ECB clearly acknowledged downside risks to growth after a raft of weakening economic data prints, but felt risks remained broadly balanced. Indeed as some ECB members are still keen to see an end to the asset purchase program, forward guidance was not going to be changed so quickly and the exercise of the day was to not change course too quickly.  While the ECB has announced its willingness to gradually taper asset purchases, exchange traded fund (ETF) investors continued to buy close to US$3.3billion of euro government bond exposures year-to-date indicating they are not afraid of an early taper and are more focused on economic data and the rise of geopolitical risk.”

Lardner comments, “As expected, the ECB kept its cards close to its chest today and gave little away in relation to the future path of policy.  While it maintains a level of confidence that the economy is on a solid path and that inflation will return to target over coming years, the recent falloff in European data has led it to maintain a degree of caution.  According to ECB President, Mario Draghi, no changes to the path of monetary policy were discussed at this meeting.  Rather the focus was on assessing whether the falloff in economic activity since the beginning of the year is just a normalisation after the very strong readings over recent quarters, or the beginning of a more significant decline.  It appears the ECB wishes to wait until the June meeting when more data and staff economic forecasts will be available before committing to any policy changes.”