By Cosimo Marasciul, Head of European Government bonds, Pioneer Investments

• No change in the ECB’s deposit rate :

As expected by the majority of market commentators and participants, the ECB today decided to leave interest rates unchanged. That means the deposit rate remains at -0.40%. ECB President Mario Draghi has mentioned in the past that although the ECB believes that negative deposit rates have had a beneficial impact, they are also aware that negative rates are affecting the profitability of the European banking sector. However, the ECB did note that they see “rates at present or lower levels for an extended period and well past the QE horizon”. This highlights that the ECB still maintains an easing bias and potentially leaves the door open for further rate cuts if deemed necessary by the ECB Governing Council. Given what we said earlier about the effect of negative rates on the banking sector, we doubt that rates will be cut further.

• No Change to the Size of the Asset Purchase Programme :

The monthly purchases under the Asset Purchase Programme will remain at €80bn per month in total for now, despite some expectations that this number would be increased. Had the ECB announced an increase in the size of monthly purchases, it would have needed an almost immediate tweaking of the rules around how much of each country’s bonds can be purchased. Even at the current run-rate of purchases, the ECB would soon be running out of bonds to buy in certain countries.

• No Discussion of Extension of Quantitative Easing Programme :

Somewhat surprisingly, President Draghi said that the Governing Council tasked committees to focus on the smooth implementation of current stimulus measures, but noted that “we didn’t discuss anything else”. When questioned again on this topic at the press conference, MrDraghi stressed that the ECB did not discuss extending the QE programme past the current scheduled end date of March 2017, or beyond, if necessary. He noted that the current programme is effective, and implementation is the focus. But he did say that there was no need for extra stimulus “for the time being” and that the programme would continue until progress has been made in achieving the ECB’s inflation target. So again, the door remains open for an extension of the programme in the future, if the ECB considers it necessary.

4. Slight Revision to Growth forecasts, No Change to Inflation forecasts :

The new ECB staff economic forecasts are slightly weaker than the previous forecasts in June 2016. ( see table below). President Draghi noted that risks to the economic outlook are still tilted  to the downside, with growth being dampened by subdued global demand and possible Brexit effects. Acting as an offset to these downside risks is the expectation that the fiscal stance in 2016 will be mildly expansionary. Draghi also remarked that the way inflation is now evolving is consistent with the ECB’s forecasts and expectations, so removing the need for any further immediate action to boost the QE programme.

GDP Forecast	2016	2017	2018
June 2016	1.6%	1.7%	1.7%
Sept 2016	1.7%	1.6%	1.6%
Inflation Forecast	2016	2017	2018
June 2016	0.2%	1.3%	1.6%
Sept 2016	0.2%	1.2%	1.6%

“Source : ECB, Pioneer Investments. Date as of 8th September 2016”.

• Overall – A Hawkish Tone

Given the ECB’s reluctance to discuss any extension of their QE programme, and President Draghi’s repeated insistence that the Governing Council didn’t discuss anything else, it would suggest that at the moment the ECB is comfortable with current monetary policy settings. Thus, there is no need, in their eyes, for any further action – Draghi noted that “we must be patient”. The immediate reaction has been to push bond yields higher (with peripheral European bonds under-performing), yield curves have steepened, whilst the Euro is pretty much unchanged since before the press conference.