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ECB: The QE Suspense Game

Business Middle East

ECB: The QE Suspense Game


Business Middle East looks at the reaction to the European Central Bank’s final meeting of 2014.

ECB President Mario Draghi kept everyone in suspense over his much anticipated announcement on new stimulus measures but in the end no final decision was made.

The uncertainty overshadowed the financial markets in Europe and the Middle East as well. Investors are now awaiting concrete action amid market volatility and sensitivity.

Time is running out for Mario Draghi as he tries to build consensus among policymakers over a stimulus package before the ECB’s next meeting. At the December gathering crucial growth and inflation forecasts were cut for the 2014 – 2016 period.

According to Draghi, the central bankers prefer to wait to assess the full impact of what they have already done during the second half of this year. They will also be studying the effects of sliding oil prices which has an impact on inflation.

With a quantitative easing programme, about 1 trillion euros could be pumped into the eurozone economy, though Germany, the region’s powerhouse, opposes that idea. The euro remains very sensitive to the ECB’s policy signals.

European market indices fell immediately after the meeting, but soon turned around following leaks indicating the central bank would announce a stimulus programme at its next meeting in January.

Anticipation of eurozone quantitative easing helped share prices, but there was downward pressure from credit ratings agency Standard and Poor’s lowering its outlook for Saudi Arabia to stable from positive due to lower oil prices. Oman’s outlook was reduced to negative.

MENA trading opened Sunday December 7, with a variable performance. Investors are now keen for concrete action, as analysts say the ECB is under increasing pressure and any further delays could prove harmful.

Nour Eldeen Al- Hammoury, Chief Market Strategist at ADS Securities spoke to Euronews’ Daleen Hassan.

DH: “Is what we saw last week from the ECB a deliberate strategy, or is it just the unavoidable consequences of the central bank’s policymakers being divided on what to do?”

NAH: “Mario Draghi has been very reluctant since the beginning of this year, he preferred to wait until the business conditions deteriorated in the eurozone before he took any measures. This time there is no difference, in fact the situation is even more serious than before. The internal tensions in the ECB play a major role in the current policy. However, taking such a decision needs a small majority and Germany can’t stop this. Germany is trying to avoid this as they think it is very expensive. At the end, the ECB has to do what eurozone economies need as a whole. Therefore we believe that a wider range of QE could be announced in January.”

DH: “Considering these policies, what are the prospects for the euro, and is there a need for quick intervention from the ECB?”

NAH: “As far as the ECB is considering increasing the balance again by another 1 trillion, the euro is likely to remain under pressure and likely to test 1.20 in the coming weeks. Indeed we believe that the ECB needs to intervene quickly as falling oil prices will add more pressure on inflation.”

DH: “As you view things from Abu Dhabi, what are the consequences of the latest fluctuation in the MENA markets despite  the hints of possible QE in January?”

NAH: “In the Middle East we have two major factors. Falling oil prices are keeping investors away from the markets and looking to other safe haven assets as everyone is afraid of a slow down in the next few months. The second part of the story is the credit rating agencies decisions you mentioned earlier. Changing the future outlook will add more fears and be likely to keep investors away for some time.”

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