Quantitative easing took on new meaning this week as the European Central Bank (ECB) unveiled not one but six separate measures to support the eurozone economy and raise inflation.
Attacking on all fronts is supposed to signal the central bank's determination. But it also carried a distinct whiff of desperation, on a day when the ECB also unveiled sharply lower forecasts for eurozone growth and inflation.
The package showed the ECB had learned from the Bank of Japan's unhappy experience with negative rates and thought hard about the implications for banks. The new measures also tighten the focus on bank lending as a key channel for monetary policy, rather than the exchange rate.
However, ECB president Mario Draghi's admission that he didn't expect to cut rates further - despite a forecast for inflation of just 1.6% in 2018 - also highlighted the limits to central bank action in this environment. European financial stocks initially surged by 3.5%, but fell back on Draghi’s comments, which took the heat out of the equity and bond market rally and left the currency 0.3% higher against the dollar at the end of the day.
Exhibit 1: Eurozone financials intra-day moves, 10 March 2016
Euro Stoxx Financials sub-index
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