Oliver Blackbourn, Portfolio Manager on the Janus Henderson UK-based Multi-Asset Team, comments on the departure of Mario Draghi as ECB President.
Oliver Blackbourn, a portfolio manager on the Janus Henderson UK-based Multi-Asset Team, comments on the departure of Mario Draghi as ECB President on October 31, 2019, as the central bank itself potentially reaches the limits of what can be achieved using the levers of monetary policy.
As Mario Draghi's tenure as President of the European Central Bank (ECB) comes to an end, it is difficult not to recognize that the central bank is now reaching the limit of its monetary toolkit. Uttered at the height of the eurozone debt crisis, "whatever it takes" is quickly turning into "whatever they can do." The truth seems to be that there is only so much a central bank, mandated in by competing interests and ideology, can achieve with its monetary policy mandate.
Draghi's consistent call for structural reform has gone unheeded but any future slowdown is likely to require government fiscal action, rather than yet further monetary policy easing.
Despite the seemingly fractious end to his time in office, Mario Draghi is likely to be remembered as a dynamic central banker, prepared to push the boundaries when others are stuttered. Whether you agree with the policy decisions or not, he was prepared to act with colleagues and politicians with him. However, he may be leaving at an appropriate time as it is difficult to see how much more innovative the ECB can be within the restrictions of its mandate. Interest rates sit well below zero and quantitative easing has already been pushed various major European sovereign bond market yields into negative territory. The chart below shows the policy-sensitive 2-year German bundle has moved within a fairly narrow range for the last three years, suggesting that policy has been reaching a limit.
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