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Draghi drops no apparent clues on QE rollbacks at Frankfurt address Thursday


European Central Bank (ECB) President Mario Draghi spoke on financial stability at a meeting in Frankfurt today. 

The ECB leader addressed the audience saying that central bank monetary policy is not the appropriate instrument to address financial hardship and bubbles in Eurozone countries; instead, member governments must adopt and rely on their own tools to address issues. (One of the countries currently at risk of property bubbles is Germany). 

“Financial and business cycles can potentially become de-synchronized, meaning that financial imbalances can grow in an environment characterized by relatively muted inflation,” Mr. Draghi said, continuing, “in such an environment, the use of monetary policy is not the right instrument to address financial imbalances, and may lead to substantial deviations of aggregate output and inflation from their desirable levels." 

Investors were on edge for any clues regarding whether the ECB will join the Federal Reserve in beginning to unwind the massive monetary stimulus programme adopted after the financial crisis of 2008, however, it appears that Mr. Draghi will wait a bit longer to drop any such information. Yesterday, the Federal Open Market Committee (FOMC) revealed October as a fixed start month for reductions of quantitative easing to begin. Following the announcement, the dollar strenghened versus the euro, up 1.0% to trade at $1.890 after a 0.8% decline against the single market currency one day before. 

However, the euro has remained strong on speculation that Mr. Draghi and his central bank colleagues will join what is now known as the "Great Unwinding" relatively soon.