ECB decision: somewhat disappointing - BBH

According to analysts from Brown Brother Harriman, the European Central Bank somewhat disappointed markets by keeping the QE program unchanged.  

Key Quotes: 

“The shaving of 2017 and 2018 growth forecasts as well as the recognition of continued downside risks did not prompt the ECB to adjust monetary policy.  Rates were left unchanged, as widely expected.  The ECB also refrained from extending the asset purchases.  This is somewhat disappointing.  It was the only action that investors were discussing as a possibility.  Bond yields appear to be backing up in response.”

“Many will suggest that the downgrade of the growth outlook is the most important takeaway from the ECB's press conference.  We wonder whether, in the medium and longer terms, the announcement that appropriate Eurosystem committees have been instructed to evaluate the stimulus options is more important than the small tweaks in economic forecasts.  This seems to be in preparation of additional steps that may be necessary if the asset purchases are indeed extended.”

“Draghi appeared to be taking a page from the footballers by going on the offense as reporters' questions put him on the defensive. He vigorously defended the combination of orthodox and unorthodox policies, claiming they are effective. The transmission mechanism which had previously been a challenge is now working well, he judged, and fragmentation has been reduced. This is why no new policies, including extending the asset purchases, were announced:  They are not needed now. Economic and monetary developments are moving in the desired direction.” 

“When everything is said and done, more was said than done.  The Eurosystem committees will provide an evaluation of measures, while the ECB's staff shaved next year's growth and inflation projections.  There is no date provided for the committees' report, but it seems clear it must be delivered before the current buying program is to end (March 2017).  Indeed, a decision must be made somewhat before then. That is still six months away. Although we recognized that the ECB could have announced an extension of its program today, we also appreciate that officials typically do not make a decision until they must."