European Stocks Fall On Stimulus Delay
European stocks dropped on Thursday after investors were disappointed by the European Central Bank’s lack of urgency regarding economic stimulus, according to Bloomberg.
Thursday, December 4, 2014 - 00:00
The ECB met today to discuss a potential large-scale government bond purchasing program, or quantitative easing. Many analysts expected ECB President Mario Draghi to reinforce the need for new monetary policy measures in order to fight declining inflation, but the ECB instead indicated it will wait until 2015 to assess the need for further stimulus.
“Markets had expected more than the ECB could deliver,” Henrik Drusebjerg, chief strategist at Carnegie Investment Bank AB in Copenhagen, told Bloomberg. “The ECB needs to see the effects of the current measures implemented and also assess the effect of the significantly lower oil price on the European economy.”
The Stoxx Europe 600 lost 0.8% after the ECB reduced its forecast of eurozone stimulus. The index is on pace for its worst daily performance since November 12. Italy’s FTSE MIB and Spain’s IBEX 35 both fell more than 1%, while France’s CAC 40 declined 0.7%.
Eurozone to implement wait-and-see policy
Draghi said that the ECB would determine during the first quarter next year whether or not its current measures are adequate to push inflation toward the bank’s target of just below 2%, according to The Wall Street Journal. The current oil price decline has made it more difficult to accurately predict how inflation rates will respond, so the bank needs more time to assess.
“Early next year the governing council will reassess the monetary stimulus achieved and the outlook for price developments,” Draghi told reporters in a news conference. “We will also evaluate oil price developments.”
The news is frustrating for economists who hoped the ECB would emerge from its December meeting with a more concrete plan for handling persistently low inflation rates, which came in at 0.3% in November.
Still, even the implementation of quantitative easing may not be the answer to boosting inflation. Several of the ECB’s top Governing Council members expressed their willingness to use quantitative easing, but many financial markets believe more policy changes will be necessary.
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