The European Central Bank (ECB) is likely to remain under pressure to cheapen credit despite yesterday’s decision by its governing council to extend its quantitative easing (QE) programme and cut its discount rate by 10 basis points, and may react further if later warranted by economic data, according to investment experts at two Danish pension providers.
Rasmus Pilegaard, senior strategist at PFA Asset Management, said: “Looking ahead, some pressure will persist on ECB to do more.
“Especially considering that ECB project inflation to increase to a meagre 1.6% by 2017, which is clearly below the ECB target – despite low interest rates oil prices, and foreign exchange.”
But he questioned whether ECB president Mario Draghi would in fact be able to loosen policy again at a time when inflation was increasing, owing to base effects.
“We would need a new negative shock to inflation before the ECB would ramp up their monetary policy,” he said, adding that there would be a bias in the markets towards further easing in the coming quarters.
Meanwhile, Anders Schelde, CIO at Nordea Life & Pension in Denmark, said: “We are not too bullish on equities globally for next year because there are too many problems in emerging markets and the energy sector.”
“Europe offers very good value, and I don’t think the ECB’s decision yesterday really changed that.”
Schelde put the afternoon sell-off in the markets yesterday down to bad communication by the central bankers in the run-up to the announcement, rather than seeing it as evidence ECB policymakers had misjudged the economic situation when formulating their response.
“At the end of the day, their number-one priority is to get the European economy going, and they will do what is needed,” he said.
“If it turns out the economy needs a little more down the road, they will also do that.”
PFA’s Pilegaard said: “It’s pretty safe to say the market got carried away prior to yesterday’s ECB decision.”
However, one lesson to be learned from yesterday’s events was that the market was still showing clear signs of herd behaviour, he said, adding that he expected 2016 to be significantly more volatile compared with 2015.