Draghi takes action with a hint of more

While the downward revisions of the ECB's September forecasts were broadly in line with expectations, President Draghi sent a somewhat more dovish message than expected, also by raising the issue share limit for sovereign bond purchases to 33%. While this needs to be seen in light of the ECB wanting to maintain the initiative, the basic questions remain: what can it do further and how effective are its measures?

"The dovish tone suggests that our call for an announcement of extending the purchase programme and TLTROs beyond 2016, also expanding purchases to corporate bonds, in the spring of next year may come earlier if the euro area shows signs of contagion from China. While reducing its inflation forecasts significantly to 1.1% next year (from 1.5%), the ECB still forecasts higher inflation of 1.7% in 2017 (and 3.9% growth in investment) which suggests that the ECB believes a more traditional recovery is still possible. We still tend to disagree and expect inflation to be well below target in 2017 and beyond", says Societe Generale.