We expected some market volatility with the ECB meeting in December. There were signifi cant expectations concerning how far President Mario Draghi will expand the QE programme. The infl ation target of 2% has been said to be the primary objective of the central bank and Draghi mentioned that he will do whatever it takes to boost Eurozone infl ation -and growth - in the near future. It turned out that markets had fi nally overpriced the likelihood of Draghi’s action. At the press conference that was held following the announcement that the ECB deposit facility rate had been lowered to -0.3%, Draghi announced that the QE will continue up to March 2017. He has then confi rmed his good hopes in the infl ation reaching the target.
We believe that a six-month extension until March 2017 only represents a trade-off. Announcing an expansion of the QE up to September 2017 would have, clearly, affected the central bank’s credibility. Mario Draghi has preferred to announce a 6-month extension that may be continued as long as it will be needed. Otherwise its monetary policy effi ciency would be brought into question. As a result, we fi rmly believe that the QE will continue beyond 2017 but that was impossible to admit.
Another strong point is that there is the widespread belief that an easing monetary policy is the only way to get the crisis away. When using both U.S. and Japanese QE programmes as a yardstick, we know that the of Draghi’s action. At the press overall concept of QE efficiency still has to be proven. The question would be how the ECB would succeed where the Bank of Japan and the Federal Reserve are still struggling. The Swiss National Bank looked closely at Draghi’s conference as the Swiss economy is largely dependent on the European economy and the EURCHF has remained stable.
We think that it is due to the Swiss safe haven status which offsets the EUR strengthening. In the near future, downside pressures on the pair are set to continue as European uncertainties - both economic and political - persist.
For the time being, it leaves some room to the SNB to act in case the Swiss Franc strengthen. And we think that this is going to happen as the current European monetary policy won’t create any growth.
Only countries’ debt will go much higher as what is currently happening in US and Japan. Consequently, we await a further action from the SNB to prevent the fatal strengthening of the Swiss Franc.