M&G Investments Comments on ECB meeting

As was expected, the ECB left interest rates unchanged and is committed to asset purchases of €60bn per month until the end of 2017 “or beyond, if necessary”.

It appears clear that the ECB is taking a prudent path to any potential announcement to reducing its very easy monetary policy stance, for fear of generating unnecessary volatility in financial markets. Indeed, interest rates are unlikely to be raised for quite some time. This is despite a stronger performance from the euro area economies in 2017. Much of Europe is currently benefitting from high levels of business and consumer confidence, suggesting that consumer spending growth and business investment will continue to contribute positively to economic growth.

The improved economic performance from the Eurozone suggest that the intensity of monetary policy stimulus will be reduced gradually over time. It is likely that at its September meeting, the ECB will consider how and when its asset purchase programme will be scaled back. It is important to note that a tapering of asset purchases represents a reduction in the degree of monetary stimulus rather than a fast interest rate tightening cycle. In this type of environment, risk assets are likely to continue to be well supported provided the economy continues to expand and inflation remains close to the ECB’s target.

Anthony Doyle – Investment Director at M&G’s Retail Fixed Interest team – M&G Investments