President Mario Draghi’s last ECB meeting came in without surprise. He sent a cautiously dovish message about Eurozone’s economy and reiterated the importance of the stimulus package announced last month. The new leadership will likely maintain the existing policy stance unless there are dramatic changes in the domestic and global economic environment. At the meeting, ECB left the deposit rate unchanged at -0.5% and affirmed that new QE program will take effect on November 1.We expect further reduction in deposit rate will come early next year, possibly together with extension of QE.

Eurozone’s economy remained fragile. As suggested in the accompanying statement, data flow during the inter-meeting period confirmed “a protracted weakness” in the region’s growth outlook, as we as “persistence of prominent downside risks and muted inflation pressures”. It also acknowledged that the problem of sluggish wage growth persisted. At the press conference, Draghi also cited recent PMI data as a signal of economic weakness. Besides noting that manufacturing PMI declined to the lowest level since 2012, he raised concern that weakness in manufacturing sector is spreading to the services sector