Closed Central bank action

With the Eurozone wobbling, the European Central Bank and the Bank of England are holding policy meetings as they increase efforts to revive the economy.

By Lina Saigol, Tom Burgis and Ben Fenton with contributions from FT correspondents. All times are GMT.

Good morning.

Here’s the line up for today:

The BoE will announce its monetary policy today at 12:00 GMT.
The ECB will announce its policy at 12:45 GMT.
Mario Draghi, ECB president, will hold a press conference at 1:30 GMT

Emoticon Silvio Berlusconi has been sentenced to a year in prison over a wiretapping case, but don’t hold your breath to see him actually spending any time behind bars.
Guy Dinmore, our Rome bureau chief, says this is the first stage in a lengthy process and the former PM has two stages of appeal before he faces any real danger of incarceration.

Berlusconi is also facing separate trials over tax fraud and having sex with the under-age prostitute Karima El Mahroug, known as Ruby.

Another big day of central bank action dawns and the backdrop, as ever, is Europe’s struggle to escape recession. To Lisbon first and the FT’s Peter Wise, who has tidings of the Portuguese recovery.

Standard & Poor’s has raised Portugal’s credit rating outlook from negative to stable, saying the likelihood that international lenders will give the country more time to meet budget deficit goals reduces the risk that Lisbon will fail to comply with its €78bn bailout programme.

The rating agency on Thursday confirmed Portugal’s long-term sovereign debt rating at BB, two notches below investment grade, but revised its outlook on the grounds that easing the pace of fiscal consolidation would “make Portugal’s adjustment process more sustainable”.

The “troika” of the European Commission, the International Monetary Fund and the European Central Bank is expected to recommend giving Portugal an extra year to meet budget deficit goals agreed under its three-year adjustment programme after an assessment of progress.

This would make Portugal the first eurozone country to be given a second extra year to meet its fiscal goals after the budget deficit target for 2013 was relaxed in September from 3 to 4.5 per cent of national output.

Lenders have praised the centre-right government’s commitment to fiscal discipline through an increasingly tough austerity programme that has triggered massive peaceful protests.

The troika is now expected to agree to ease fiscal tightening further to compensate for the impact of a deeper than expected European downturn on Portuguese exports.

S&P said it also expected Portugal’s lenders to give Lisbon more time to pay back its bailout loans following formal requests from Lisbon and Ireland to extend the maturities of these loans.

The agency said this would reduce Lisbon’s refinancing risks “and, to a lesser extent, its interest costs”.

The FT’s Currency Correspondent Alice Ross looks at Sterling’s slide ahead of the BoE decision:

The pound hit a fresh two-year low on Thursday ahead of a decision from the Bank of England on whether to cut interest rates and restart its printing presses to kick-start the UK’s sluggish economy.

Sterling fell to $1.4967 against the US dollar, its weakest level since July 2010, amid speculation the BoE could announce more monetary easing after it signalled in recent weeks it was less concerned about inflation remaining above its target.

And the FT’s leader writer Ferdinando Giugliano, who contributed a great deal to our coverage of the recent Italian elections, has tweeted a reality check on the Berlusconi news:

German industrial orders for January have unexpectedly dropped 1.9 per cent, attributed to a slide in demand from Eurozone trading partners.

Meanwhile, earlier this morning the Bank of Japan left monetary settings on hold, rejecting proposals for more urgent easing from two of his board members.

Some snap commentary from analysts at Capital Economics on Japan:

The Bank of Japan’s decision to leave policy on hold today was widely expected in the light of the leadership changes due later this month.

Two Board members did propose tweaks to the framework which might find more favour once the new Governor-in-waiting, Haruhiko Kuroda, takes over, although neither is the sort of “game changer” that many are hoping for. In our view, it is a near certainty that policy will be eased further in April, probably by increasing the size and lengthening the maturity of JGB purchases. However, this much is now surely priced in and the likely rejection of more radical options is setting up the markets for some major disappointment.

On Alphaville, David Keohane has blogged on this morning’s lead story in the FT
print edition, which detailed plans to give the Old Lady of Threadneedle Street…

(pic: Charlie Bibby, FT)

…more powers under its new governor Mark Carney to stimulate the UK economy.

FT currency expert Alice Ross has tweeted the current state of the £:

In the wake of Italian elections that delivered a firm kick in the teeth to Mario Monti’ and his austerity project, Pierre Moscovici, finance minister in France’s Socialist government, has launched a fresh broadside against those who would right the euro’s wrongs simply by slashing public spending. He told a conference of the European Parliament’s Socialist group:

“Budget adjustment and growth — we need to pursue a fair balance between these two objectives.”

His point would appear to be underscored by more dire eurozone economic data today. French unemployment has risen to 10.6 per cent, its highest level in 13 years.

Muscovici’s colleague Arnaud Montebourg, the industry minister, pounced on the jobless figure to ram home the message. He told France Info radio:

“Europe and the euro zone are sinking. This is why the government is fighting, with the European Commission, for growth measures to be taken.”

Greece, by contrast, recorded its first monthly drop in the unemployment rate since May 2008. But the jobless tally remains at an eye-watering 26.4 per cent, the highest in the euro area.

Emoticon Bank of England holds interest rate at 0.5 per cent and QE at £375bn

Shares have taken a big knock. Markets were expecting some more quantitative easing.

The FT’s Claire Jones has filed a full take on the Bank of England decision with her usual alacrity.

Raplh Atkins, the FT’s markets supermo, says sterling has hit an intra-day high, UK 10-year gilt yields are up about 4 basis points and the FTSE 100 has dipped – down about 0.1 per cent so far since the noon decision

David Cameron is on his feet giving a major speech on the UK’s economic direction.
He says he will “stick to the plan” and “reject false choices”, perhaps a reference to calls from senior coalition partner Vince Cable, the Lib Dem business secretary, for a change of direction.

Cameron says Britain is in a global race and blames Labour for fatally undermining its competitiveness because of red tape.

The UK prime minister is giving his speech in Keighley, in Yorkshire, not necessarily a hub of economic thinking, but a place emblematic of the hard realities of the country’s financial turmoil.

Analysts at Capital Economics have this reaction to the BoE decision:

“Although the Monetary Policy Committee (MPC) left policy on hold again today, we expect that it will not take much to swing a majority of members in support of more stimulus in the near future. While this will probably, in part, take the form of more quantitative easing (QE), the growing openness of the Committee to new ideas suggests that the MPC is unlikely to remain a ‘one-club golfer’.”

The CBI has had its say too. Stephen Gifford, director of economics at the employers’ group, opines:

“A combination of mixed economic data and the MPC’s recent tilt in a more dovish direction, is likely to have made this decision a close call. With only a modest pick-up in growth expected, the possibility of further QE will remain a live issue.”

Cameron says he has a clear plan to deal with the deficit – to make the rich pay a greater share of our nation’s tax then any other government in the past 13 years.


Markets can be confident we are implementing our plan to deal with the deficit.

Hard to overstate the importance of low interest rates for our economy. He says a sharp rise in interest rates would damage any recovery.

Nuance of language is everything in these speeches, according to Channel 4′s political correspondent:

Here is Mr Cameron, pictured in front of some unidentifiable (but pretty clean) heavy machinery.

Cameron’s buzz word again: Monetary Activism – says the UK has made big strides in reforming the banking system. We are introducing more competition and choice in banking and


It is now possible to buy a new home, anywhere in the country with just a 5 per cent deposit and low interest rates.

As Mr Cameron is speaking, No 10 Downing Street is tweeting some of the main points from his address.

Mr Cameron adopts Marquess of Queensberry Rules in his approach to the economy:

Attention starting to turn to Frankfurt. The prediction is for no change on either rates or emergency measures.

A few short months ago, Mario Draghi was being hailed as Super Mario, the Saviour of the Eurozone. He would have been entitled to a victory dance, thus:

Last time out, however, he faced some awkward questions about Italian banking scandals. Fantasies about the ECB somehow willing the eurozone economy back to health seem to be fading. Thus:

We’ll have the decision at 12.45 then Draghi’s presser at 1.30.

Mr Cameron has been in animated mode during this speech:

The Daily Telegraph’s head of comment has this to say on the Cameron speech:

Euro trading higher at $1.3028, up 0.5% on the day.

With a few minutes to go until the ECB decision, here’s a markets read-out, courtesy of Reuters:

Ahead of the ECB decision due at 1245 GMT, the euro had gained 0.45 percent to $1.3030, but dealers said it was susceptible to losses and could retest last week’s near three-month low of $1.2966.

“We don’t expect anything from the ECB, but a small minority is looking for a rate cut today, and that is partially built into the price,” said Adam Cole, global head of FX strategy at RBC Capital Markets.

“If the ECB stays on hold, we could probably see a small bounce in the euro.”

The pan-European FTSEurofirst 300 index gained about 0.2 percent to 1,188 points, close to its 4-1/2 year intraday high of 1,193.35 points hit on Wednesday.

Emoticon The European Central Bank has left its main rate interest rate unchanged at 0.75 per cent.

The ECB says, pithily:

“At today’s meeting the Governing Council of the ECB decided that the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will remain unchanged at 0.75%, 1.50% and 0.00% respectively.”

The markets shrug. That was expected. It’s all about Draghi.

Here is a photograph of ordinary City folk reacting to the lack of change in interest rates both in London and Frankfurt. That’s Fiscal Cliff on the left and Uta Lee-Prediktabelle on the right.

@RalphAtkins, the FT’s capital markets editor, will be tweeting Draghi’s press conference. We’ll have all the ECB president’s key comments for you here and analysis. That said, excitement seems to be waning a little…

This, says the FT’s Claire Jones, is a big call from Capital Economics ahead of Draghi’s presser (our emphasis).

After leaving interest rates on hold as expected today, the renewed deterioration in some economic indicators and fears about Italy might prompt the ECB to hint at more policy support in future.

The sharper than expected fall in GDP in Q4, the recent dip in indicators like the PMI and the recent fall in inflation will probably cause the ECB to revise down its forecasts for both growth and inflation (due for publication today). This, together with market concerns about Italy, should prompt President Draghi to strike a more supportive tone at this afternoon’s press conference (from 13.30 GMT).

The fall in the euro exchange rate since last month will probably mean that this is no longer the focus of his attention. But he might suggest that continued weakness of activity would merit another interest rate cut or that further signs of strain in the banking sector could be met by more LTROs.

However, Mr Draghi is likely to stress that OMTs will not be implemented for any country that does not apply for an ESM bail-out and accept the associated fiscal austerity – even if the country in need is as big and systemically crucial as Italy.

Commerzbank economist Michael Schubert has this to say about rates:

“Interest rates are not the problem, but the spread between interest rates in the euro zone’s core and the periphery. Not much can be achieved with a cut and the ECB seems to be aware of this.”

While we wait, traders can check out historical ECB data and charts.

For anyone who wants to watch Draghi in Glorious Technicolor, the ECB’s live feed is here

Super Mario is in the room.

Mario Draghi says inflation rates have declined as anticipated, below 2pct in Feb and should remained contained. Monetary expansion remains subdued.

This will allow monetary policy stance to remain accommodative.

Stabilisation is still indicated, albeit at low levels. (At the moment, everything is the same as it was).

It is essential to continue with structural reforms, Draghi warns governments.

Banks have repaid 224.8bn in LTRO settled in Dec 11 and March 12.

Reflects improvements in financial market confidence and receding market fragmentation, Draghi says.

Our monetary policy stand will remain accommodative, he repeats.

GDP for Q4 was weak, he reminds his audience, with a decline largely due to falling domestic demand in the eurozone and weak export markets.

Gradual recovery should commence in H2, he says (again – same as he has been saying last few press conferences).

But tight credit conditions will weigh on growth, he says. Projections are revised slightly downwards for GDP growth, reflecting what happened in Q4 2012, not any change in rate of recovery, Draghi says.

Downside risk is associated with govt failure to implement reforms (maybe especially in his own country!) Draghi says.

Underlying price pressures should be contained. Inflation expectations are well anchored. Projections of 1.2 to 2% inflation in 2013 and 0.6% to 2% in 2014. The ranges are broadly unchanged from last quarter.

Any upside risk will be down to changes in oil prices and possibly greater indirect tax receipts.

M3 growth broadly unchanged at 3.5% in Jan compared 3.4% in Dec 2012

No great change in loan activity either to businesses or households, Draghi says. Reflects current stage of business cycle and adjustment of balance sheets.

Tight credit conditions for SMEs will continue, he says.

Draghi summarises saying there is no greater risk of deflation or inflation than there was in December. (Ignoring any political changes such as the uncertain Italian elections)

Draghi says fiscal reform remains the most important factor in ensuring recovery. He particularly wants governments to address youth unemployment.

Now over to questions from the press. First one is about Italian election.

The FT’s Alice Ross is looking at the Euro reaction:…309659577882927105

FT Fashion correspondent, no, sorry, Brussels bureau chief Peter Spiegel tweets about his colleague in the Draghi press conference:

And now he’s taking questions. First up, what does Draghi make of the Italian elections and their inconclusive results. Oh, and what about credit not reaching the real economy?

On Italy, Draghi points out that markets, after some post-election excitement, have gone back to where they were before the poll. “I think the markets understand that we live in a democracy.”

“Much of the fiscal adjustment Italy went through will continue going on on automatic-pilot.”

Confidence of the financial markets in the euro area is returning, Draghi says. He notes too that, unlike previous panics, there was no “contagion” from one stressed country to another.

On credit, he says the ECB is not planning “anything special”.

Asharaf Laidi, Chief Global Strategist at City Index / FX Solutions, is watching market reaction to Draghi’s measured and undramatic remarks:

Euro up nearly 1% against dollar on the day now

Draghi will have to hope he is right about the strength of the Euro not being an (ahem) drag on the growth in the 17 member economies.

Was there any thought of cutting rates today?

Emoticon Draghi says there was talk of a cut but the “prevailing consensus” was to hold. In short, the decision was not unanimous.

Draghi is pushed again on the problem that financial market recovery is not being transmitted to the real economy. Draghi points out that “soft data” — sentiment surveys, that sort of thing — is almost universally positive.

Draghi acknowledges that, while big companies have no trouble funding themselves, Europe’s SMEs are struggling. The effects of fiscal consolidation on the real economy are still being felt, too.

Sounds like Draghi is proposing that the ECB will dig its way out of these problems:


At every press conference, Draghi contends there is an “angst of the week”. Last time it was about the ECB’s balance sheet, this week it’s about the “troika” (the ECB, IMF and European Commission) and rumours of schisms therein. It works very well, says Draghi.

Based on current standard of jokes, if there was a Perrier award for central bank chiefs, Draghi would be the runaway winner. Maybe.

From Brussels, the FT’s Peter Spiegel thinks Draghi is fudging growth:…309663793997299712

Draghi forecasts future angst over the ECB’s political independence (or lack of it). He bristles, in advance, saying the central bank has demonstrated its independence.

Is there a bubble in stocks? Draghi dodges. But he says rising equity prices might just reflect hopes for recovery.

“It is too difficult to answer this question in a clear and unambiguous way.”

That is Draghi’s opinion on whether there is a bubble in equities.

A refresher on the ECB’s bond-buying programme can be found here.

Draghi now touches on bank nationalisations, saying a bail-in of creditors would be an effective way to capitalise banks. The ECB was not informed in advance about the recent Dutch nationalisation of SNS Reaal.

Are there cracks in the unity of European leaders? No, says Draghi.

“People underestimate the amount of political capital that European leaders have invested in the Europe.”

Draghi is on a data hunt. He rifles through his papers for that killer stat. Comes up with dispersal rates. It isn’t slaying them in the aisles.

Does Ireland need to do more in its recovery, asks an Irish journo.

“Further action is needed, especially on the banking side. It’s not time to rest.”

Ralph Atkins, FT capital markets editor, points out a slight flaw in the ECB president’s recent point about dispersal rates:

Megan Greene, economist, reacts to Draghi saying that the OMT scheme cannot be used to enhance the return of countries to the market, something that was suggested in connection with Ireland:

On a bailout for Cyprus, “there is good progress”. Draghi says: the solution has to reflect debt sustainability and financial stability. The eurogroup is working on both. Then he weighs in on a heated debate over money (especially money of Russian origin) of dubious provenance that may or may not be sloshing through Cyprus.

“It’s very important that the Cyprus government takes this opportunity to revisit the money-laundering legislation.”

The Cypriot government agreed to accept an outside audit of its banking sector to ensure it complies with international money laundering standards Monday as a condition to receiving its long-delayed bailout.

Draghi is at pains to point out that, contrary to popular belief, he is not actually superhuman. There are limits to what the central bank can do to spur the recovery of banks and thus of credit.

“The ECB is not in the business of cleaning banks’ balance sheets.”

Peter Vanden Houte, chief eurozone economist at ING tweets:…309668440300466176

Michael Steen of the FT counters Draghi’s comments about the public knowing the rules of OMTs by saying that, in fact, the ECB has merely issued a 440-word statement on said rules. Draghi says it has been made clear but says that the legal underpinning is still a work in progress.

Countries should be in the market by themselves, Draghi says, explaining that OMTs will not be used to “enhance” a rescued country’s return to the market. Countries would have to be able to issue along the yield curve to a fairly broad category of investors in certain quantities. The OMT was created to be a backstop to remove tail risk.

On the euro, Draghi says exchange rate is important for growth and stability. But it’s not a policy target

But who knows the long-run of FX? tweets an economist:…309670527511957504

What does Draghi make of the talks on a US-EU trade deal?

“A free trade area would be a source of growth and job creation [but] should be consistent with multilateral engagements.”

Given that inflation is low, can the ECB turn its attention to jobs? “Youth unemployment is a tragedy,” says Draghi. But he blames labour legislation that puts all the weight of flexibility on young people. There is not much he can do about that, he says, reasonably. He stresses that the ECB will say “in full allotment mode” for as long as it takes.

Back to Italy. Do the election results mean a departure from austerity or even from the euro. Draghi won’t speculate but says continuing with structural reforms is the only way back to growth. “This is the path.”

Draghi stubbornly refuses to make any comment on the euro exchange rate.

He says there has been contemplation of cutting the deposit rate into negative territory. But such a move would take the ECB into “uncharted waters” and Draghi sounds distinctly disinclined to voyage to such a perilous place.

With that, his press conference is over.

Now for something completely different but a breaking bit of UK news all the same. Vicky Pryce, the former wife of disgraced ex-cabinet minister Chris Huhne, has been found guilty of perverting the course of justice by agreeing to accept a three-point penalty for speeding when her hsuband had been driving their car. More shortly on

Mary Watkins on the FT’s markets desk sends this:

Little reaction to the Draghi presser from the markets. European stock markets are up slightly. German 10-year Bunds are up 4 basis points at 1.49 per cent, while equivalent Italian benchmark government bonds are trading down 5bp at 4.61 per cent.

In summary, the 2 key points Draghi made were:

1) Inflation expectations remain “firmly anchored” and that the region’s economy is expected to stabilize in the first half of 2013.

2) The decision to leave borrowing costs unchanged was not unanimous – the ECB’s Governing Council considered cutting rates.

We’re signing off now.