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Most of the news which has come out since the European Central Bank’s last governing council, in early September, has made life more difficult for Mario Draghi.
On the economic front, eurozone inflation continues to fall, dangerously approaching the zero bound. Inflation expectations have plunged back below the trough recorded in the summer. Hard and soft indicators all point to a slowdown in economic activity, now affecting also the core of the monetary union.
Concerning the effectiveness of monetary policy, the results of the targeted longer-term refinancing operations (TLTRO) have been much lower than expected, and concentrated on the periphery, which may create new stigma and discourage further drawings in future. The size of the ECB’s balance sheet continues to shrink, while money and credit aggregates are still disappointing.
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