Despite a desire to package easing at the December meeting as still open for discussion, it is clear that the ECB has effectively pre-committed itself to act.
Had this not been the case then the ECB would likely have been more aggressive in its commentary with regards to dampening market expectations of a deeper deposit rate cut and the prospect of QE2. ECB President Draghi highlights today, in speech to the European Parliament, that the eurozone recovery is progressing moderately and that inflation dynamics have weakened by lower oil and delayed effects of a stronger EUR.
There were two important reports from Reuters this week:
1) on Monday it was revealed that there was a preference from four ECB Governing Council members to cut the deposit rate sharply and
2) on Wednesday it was reported that the ECB is investigating whether it should add municipal and regional bonds in its asset purchase programme.
These reports are important as they show that the ECB is actively focused on the task of delivering further easing. The only rationale for not easing policy at the December meeting would be that the ECB had not been able to fully complete its homework and reach a consensus especially on how to modify the asset purchase programme.
In this instance the ECB could cut rates and extend the timeframe for QE from Sept-2016 to June-2017 but reveal details on the latter at its January meeting.
