Mario Draghi, the President of the European Central Bank, has sent a jolt through the markets by dropping a big hint that more financial stimulus measures may be unleashed to pull the eurozone out of deflation and shield the bloc from the headwinds blowing from emerging markets.
Speaking at the latest meeting of the ECB governing council in Malta, Mr Draghi said the central bank stood ready to adjust the “size, composition and duration” of its €1.1trn (£800bn) quantitative easing programme
The ECB kept its main interest rates on hold, but Mr Draghi said the council had discussed a further cut to the deposit rate and would review its monetary policy again in December, which was interpreted by many traders as meaning that the ECB will end up increasing its QE scheme.
“This was essentially a green light to the markets that QE was coming at the January 2016 meeting,” said Marchel Alexandrovich of Jefferies.
Nick Kounis of ABN Amro said further stimulus was likely to come in December: “The ECB will almost certainly be delivering an early Christmas present this year.”
In his opening remarks, Mr Draghi highlighted “concerns over growth prospects in emerging markets”.
His words had a dramatic impact on the currency markets, sending the euro down by more than two cents against the dollar to $1.1127.
European government bond yields also dropped sharply, with the interest rate on 10-year German bunds dropping eight basis points to 0.496 per cent.
The eurozone fell back into deflation in September, with the consumer prices index declining by 0.1 per cent year on year.
