ECB stays put as Mario Draghi bows out

The European Central Bank kept all its main policy settings unchanged, with Thursday's governing council meeting set to be the last for its current chief, Mario Draghi.

Over his eight-year term, the ECB played a crucial role in stabilising the single currency area in the aftermath of the Great Financial Crisis, filling the void left by the euro area's lack of a unified fiscal policy.

But during the last half of his term, the bloc's recovery had flagged due to multiple headwinds, including Brexit, the trade war between the US and China and the political shenanigans in Italy.

For Artur Baluszynski, Head of Research at Henderson Rowe, the first half of Draghi's term was a "big success", especially for those in the financial services industry.

"However, the second half of his tenure will most likely be remembered as a string of failed attempts to reflate the Eurozone. Despite the last four years featuring a series of extraordinary measures, inflation in the [Eurozone] failed to reach the ECB's target.

"The truth is that there are many external deflationary forces outside of the ECB's control. The sooner the EZ's political elite, especially in Germany, accept this fact, the better chance there is for a real recovery for the bloc and its banking system."

As after the GC's previous policy meeting, the ECB said that it would re-start its programme of quantitative easing, starting from 1 November and at a monthly pace of €20.0bn, with the new asset purchase programme set to run for "as long as necessary to reinforce the accommodative impact of its policy rates, and to end shortly before it starts raising the key ECB interest rates."

That commitment sparked heightened criticism from central bankers in Germany, Austria and the Netherlands and to a lesser extent in France.

Draghi would likely be most remembered by his pledge in July 2012 to do "whatever it takes", which stopped markets from speculating against Spanish sovereign debt and traders to price-out so-called 'redenomination risk' or that the euro would unravel, said Florian Hense at Berenberg.

In parallel, employment in the euro area had jumped by 11.0m and since 2013 the pace of hiring had matched that in the US, increasing by 6%.

Under his leadership, the euro area also avoided deflation even if it consistently fell short of its inflation target, partly due to lower energy prices, Hense added.

"Critically, it is necessary to judge the Draghi era in the context of the problems facing the Eurozone during his reign. The fact that he achieved mostly stable prices and avoided deflation is in itself a huge achievement," Hense added.

Nevertheless, market-based measures of inflation expectations had been persistently weak, the same economist pointed out.

"Baring an upside surprise in inflation and irrespective of a more growth-friendly fiscal policy, bridging the gap between actual inflation and the ECB’s target will require further monetary easing or a more flexible interpretation of the inflation target. The monetary policy strategy review probably finalised by autumn will have to settle this issue."

Unusually for day's when the GC makes policy announcements, particularly throughout Draghi's term, as of 1437 BST euro/dollar was exactly unchanged at 1.11304.