ECB Keeps Mumm

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What's going on?

The European Central Bank (ECB) held one of its meetings on Thursday and it did wait for it virtually nothing!

What does this mean?

As expected, there was no change to its policy on interest rates. More interestingly, ECB President Mario Draghi said that they didnt even discuss the possibility of continuing to buy European government and company bonds beyond March of next year (the ECB is currently buying about 80 billion of bonds per month). This was slightly surprising because it was (and continues to be) widely expected that the ECB will choose to do exactly that due to the fact that Europes economic growth and inflation still remain well below the ECBs target. Bond buying, in theory, helps boost growth and inflation by lowering interest rates – thereby making it cheaper for people and businesses to borrow, and in turn, spend money (click here for a full explanation).

Why should I care?

For the markets: Investors are waiting to hear how the bond buying program will be changed.
There are a bunch of rules that determine the sort of bonds that the ECB can buy. The problem is that if those rules arent changed, then the ECB will almost certainly run out of eligible bonds that it can buy. If the ECB wants to keep buying bonds beyond March – and it probably does – it will have to come up with some new rules (for example, it might buy more bonds from riskier countries like Spain and Italy than it currently allows itself to).


The bigger picture: Draghi specifically urged the German government to increase its spending in an attempt to boost the economy.
Draghi, like others, has repeatedly called on governments to try to boost economic growth by increasing their spending ASAP (on things like roads and airports). On Thursday, he was even more explicit: he specifically said Germany can afford to spend more money and that it should. Of course, this sort of commentary might not be received so well in Berlin, where German officials have often clashed with Draghi and the ECBs support for economically weaker European countries.

Originally posted as part of the Finimize daily email.

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