ECB's Draghi speech has turned more urgent, heralding full-blown QE

The European Central Bank (ECB) is now set to act and in doing so may make it easier for others, such as the US Federal Reserve, to do so as well.

Building on the steady momentum towards ‘full-blown’ quantitative easing which was to be observed until 21 November, ECB president Draghi took an important further step by discussing the importance of the “portfolio channel” in monetary policy.

That discussion seems consistent with a large-scale asset purchase programme. As well, his language was considerably more “urgent” this time around, analysts at Credit Suisse explained in a note to clients.

“We now think an explicit announcement that the ECB is prepared to undertake a large-scale asset purchase programme (including sovereign debt) is likely at the ECB meeting on 4 December. That would boost markets' confidence in the ECB's capacity and determination to expand its balance sheet.”

Unfortunately, in the absence of a more expansionary fiscal policy up-side to growth in the single currency area may prove elusive, the Swiss broker believes. However, it may serve to support the tentative expansion in the global production cycle and remove some of the tail risks which may have been impeding the Fed or the Bank of England to contemplate normalising policy next year.