Money Supply

Hello and welcome to the live blog on ECB president Mario Draghi’s press conference.

The ECB’s monetary policy statement is due at 12.45. Mr Draghi’s press conference begins 45 minutes later.

All times are UK time.

14.54 This live blog is now closed.  Here are the main take-aways.

- The ECB could restart government bond buying – but there is no immediate intervention. The ECB “may undertake outright open market operations of a size adequate to reach its objectives,” Mr Draghi announced.

- But a “necessary condition” is that governments “stand ready” to activate EFSF/ESM’s bond buying tools. That would give the ECB political cover to act.

- No limit set to the size of possible ECB intervention. That’s a big difference to the ECB’s previous bond buying programme, which was described as “limited”.

- Financial markets are disappointed at the lack of immediate intervention. Spanish ten-year bond yields are above 7 per cent again.

- The ECB could also undertake “further non-standard monetary policy measures,” Mr Draghi said, without giving further details.

- The modalities of the ECB’s enhanced crisis response will be designed “over the coming weeks”.

- The Bundesbank opposed ECB bond buying, Mr Draghi acknowledged. That means it could still be an obstacle in weeks to come, undermining the ECB’s effectiveness.

- “The euro is irreversible,” Mr Draghi said.

- The main policy interest rate was left unchanged at 0.75 per cent.

 

14.53 Here is some scepticism from BNP Paribas.

The ECB did not change its monetary policy nor did it provide us with details about possible future actions. Stress on sovereign debt markets has to be addressed and the ECB could help. But once more, the ECB through the ball back in the politicians’ court. A restart of the SMP is possible, but distressed countries have to request help from the EFSF/ESM first…

14.47  Holger Schmieding, European analyst at Berenberg Bank, is more upbeat than financial markets:

“Draghi has delivered. And Germany should say thank you for that. Although the ECB did not start to actually intervene in bond markets today, Draghi sent a strong message that the ECB will do all it takes, including interventions in sovereign bond markets…This can stop the gradual slide of the German economy into recession and allow the overall Eurozone economy to return to growth around the turn of the year, with Germany likely to enjoy strong growth again next year.”

14.42   The lack of immediate action by the ECB has disappointed markets. Mary Watkins writes:

By mid afternoon, yields on 10-year Spanish debt were up 19 basis points at 6.91 per cent, while yields on benchmark Italian debt were 24bp higher at 6.17 per cent.

Spain’s Ibex index was up nearly 5 per cent, while Italy’s FTSE MIB was more than 3 per cent higher.

 14.32 The press conference is now over.

14.30 There will be “full disclosure” under the ECB’s revamped bond buying progamme, Mr Draghi said. Does that mean it will say how much of each countries bonds it has bought?

14.28 Mr Draghi explains what he meant by his statement that  the euro had to be “irreversible”. “It says ‘it is pointless to bet against the euro’.”

14.24 Here’s a good summary of the press conference so far for the Twitterati…

14.22  By focusing bond buying on the shorter end of the yield curve, the ECB would remain consistent with “classical monetary policy,” Mr Draghi said. That was in response to a question about whether targeting longer term rates might have been of more help for the real economy.

14.20  Mr Draghi is keen to stress the sequencing: activation of the EFSF/ESB bond buying  instruments is a “necessary condition” for an ECB response, he argued. Actions by governments would be “as essential” as ECB action to restore its monetary policy transmission mechanism.

14.19 Julian Callow, European economist at Barclays, writes in a note:

We interpret this as a clear sign that the ECB is prepared to change policy significantly at its September meeting, in terms of purchasing debt without claiming seniority subject to the EFSF being deployed to buy government debt. Overall this is in line with our expectation; it still will depend on whether Spain and Italy (which have a summit now proceeding) will call upon the EFSF to do this.

14.15 Here is the FT’s updated news story

14.14 Mr Draghi appears relaxed.

 

 

14.08 Mr Draghi said in his introductory statement that the ECB “may consider” further non-standard monetary policy measures. But in answer to a question he refused to be specific about what could mean. Possibilities would be further longer term refinancing operations – perhaps lasting three years or more, or other asset purchases as well as government bonds.

There was no single trigger for the ECB’s action, Mr Draghi said, although he cited last week’s rise in Spanish and Italian two-year bond yields as one factor. He insisted the decisions were taken after “cool analysis” – rather than a result of “terror” on financial markets.

14.06 Mr Draghi said “not one word” of his comments in London last week had not been discussed at the last ECB governing council meeting.

14.04 Christopher Adams, the FT’s market page editor tweets

14.02 Here is some market reaction from my colleague Mary Watkins.

Yields on Spanish and Italian have fallen significantly since Mr Draghi last week hinted that the ECB may introduce measures to tackle the crisis.

Shortly after Mr Draghi spoke, yields on 10-year Spanish debt were trading 10 basis points lower at 6.63 per cent, while interest rates on equivalent Italian bonds were down 10bp at 5.83 per cent. Benchmark German Bunds stood at 1.34 per cent.

Spain’s Ibex index was trading up 2 per cent, Germany’s Dax up 1.3 per cent but Italy’s FTSE MIB dropped more than 1 per cent.

 

14.00 Mr Draghi has set no limits to the size of the ECB’s bond buying – that is a big change from the “securities markets programme” launched by Jean-Claude Trichet, his predecessor. But the ECB instruments are not yet in place – which could disappoint markets.

13.56 There was Bundesbank resistance: Mr Draghi said the German central bank’s reservations about bond buying were well known. But he said his commitment to preserve the euro was backed “unanimously”. Details of the bond buying programme would now be drawn up – and then brought back to the council for a formal decision.

13.53 Mr Draghi rules out giving the ESM a banking licence, which would allow it to leverage the ECB’s unlimited liqudity. He had said “at least twice” that such a step was not possible given the ESM’s design. An ECB legal opinion had also ruled out such a stop. Mind you, that could change if the design of the ESM was changed by politicians.

13,50 Bond market intervention would be focussed “on the shorter part of the yield curve,” Mr Draghi said. The ECB’s bond buying would be “very different” from last time. There would be clear “conditionality” imposed on governments.”

13.50 Mr Draghi’s statement is available here.

13.50 Another important point in Mr Draghi’s statement: he says the issue of “seniority” will be addressed. This refers to the ECB’s refusal – s0 far – to take a haircut on its Greek government bond holdings, which has led to fears it would also take priority in other restructurings. Mr Draghi’s comments suggest the ECB may now be prepared to take a Greek loss.

13.47 ”First of all governments need to go to the EFSF; the ECB cannot replace governments,” Mr Draghi warns.

13.45 Mr Draghi said a cut was discussed but the 23-strong governing council considered this was not considered the right time. Negative interest rates were “uncharted territory,” he said eliptically.

13.45 Mr Draghi is now taking questions. The first two are on whether the ECB discussed a cut in interest rates and whether the ECB might consider a negative rate on its deposit facility.”

13.43 Justifying action, Mr Draghi said bond market risk premiums pricing in a eurozone break up were “unacceptable”. There was a “severe malfunctioning” in markets. “Modalities” for the ECB’s action would be worked out in coming weeks.

13.42 Action by the EFSF/ESM would be a “necessary condition” for addressing dysfunctional bond markets, but it would not be sufficient, Mr Draghi said. Hence he foresaw an ECB role as well – of course while sticking within its “price stability” role, of course.

13.40 Mr Draghi also said governments “must stand ready” to activate the European Financial Stability Facility and European Stability Mechanism – the bail-out funds, which have bond buying powers. Those bodies would imposed “strict and effective” conditionality on governments, he said.

13.35 There is a plan of ECB action – and it goes significantly beyond what some investors had expected: The ECB can make outright purchases in open market operations “of a size adequate to reach its objectives,” Mr Draghi has said. That almost certainly means a re-vamped bond buying programme.

13.30 Mr Draghi is opening the press conference and reading his introductory statement.

13.15  The press conference should start in 15 minutes. The ECB provides a buffet lunch to journalists beforehand. Some analysts wonder if reporters coordinate their questions. My experience is that they do not.

12.50  Claire Jones has just filed on the interest rate decision. See her story here.

Claire writes:

This week, Mr Draghi privately encouraged officials on the governing council to back a deal for the ECB to support sovereign debt purchases made by the European Financial Stability Facility, the bloc’s temporary rescue fund, with central bank bond buying in the secondary markets.

The deal involved the EFSF buying bonds directly from governments after lawmakers had committed to sign memoranda of understandings, which would involve deals to hit deficit targets set by the EU Commission and an agreement to implement structural reforms.

Crucially for the ECB, that would mean that its bond purchases were conditional on governments pressing ahead with economic reform – unlike the central bank’s earlier forays into the sovereign debt markets. But it is unclear whether all of the elements needed for a deal will be in place in time for Thursday’s vote, with Spain seen as reluctant to sign up to such an agreement.

Germany’s Bundesbank is likely to object to any further bond purchases by the ECB, a policy which Germany’s monetary authority believes strays beyond the remit of the central bank – to control inflation – and into the terrain of fiscal policy, which it views as the responsibility of eurozone governments.

12.45  The ECB has left its main interest rates unchanged. Here is the official announcement. No surprises here. Any policy response such as bond market intervention would only be announced during the press conference.

12.38 Here are James Mackintosh’s pre-announcement thoughts.

12.30  Ahead of the meeting, the ECB president heightened expectations of a beefed-up response to the eurozone debt crisis. As the FT reported, discussion has focused on possible coordinated bond market intervention by the ECB and European Financial Stability Facility, the European Union’s bail-out mechanism. But as noted here it is unclear what Mr Draghi can deliver today. Here is Claire Jones’s handy guide to today’s meeting -and our latest on market developments.