The ECB decision is wise and balanced. It may disappoint many in Germany. The extension of the PSPP programme was inevitable as the risks to the euro area economy are still huge and the ECB is likely to miss its price stability mandate through 2019.
The ECB decision is wise as it leaves all options open. The ECB is introducing more flexibility through the changes to the PSPP programme. The ECB decision implies a longer period of low interest rates than expected by many. The reduction of the size of monthly purchases sends a clear signal to financial markets about the possibility of a gradual exit, with the objective of avoiding an abrupt increase in interest rates in the future. The risks to price stability have to be weighed carefully against the risks to financial stability through the ECB’s expansionary policy path.