Hello and welcome to our live blog on the European Central Bank’s press conference. The governing council held rates today, as expected. But ECB president Mario Draghi might offer some clues on what’s to come from the central bank in the months ahead. Mr Draghi is due to begin speaking at 13.30 UK time.
By Claire Jones and Lindsay Whipp. All times UK time.
Hello and welcome. The ECB has kept all of its policy rates on hold, as expected.
Earlier in the day, so did the Bank of England. However the BoE, in its first vote since Mark Carney took charge, also released a statement saying markets had overreacted to the Federal Reserve’s shift towards the exit and that the rise in longer-term borrowing costs over recent months was “not warranted”.
Sterling has slid since the BoE’s statement came out at 12. Will Mr Draghi have a stab at introducing ECB-style forward guidance at today’s press conference in an attempt to weaken the euro? We shall see in around 20 minutes time when the presser begins.
Here’s the FT’s Frankfurt Bureau Chief Michael Steen on today’s ECB vote: http://www.ft.com/…-00144feabdc0.html
Here’s what Michael expects from Mr Draghi later on:
He is likely to stress again that the ECB’s monetary policy has been accommodative and will remain so for the time being. That stands in contrast to hints from the US Federal Reserve that it could slow the pace of its bond purchases. But Mr Draghi’s comments will also be closely watched for any hint that the ECB wants to adopt more explicit “forward guidance” as the Fed has done by pledging to keep rates low until certain conditions are met.
Mr Draghi is delivering his opening statement now. Highlights to follow.
Not much change on the outlook in the opening statement. The ECB president still expects an economic recovery towards the back end of this year.
The risks to inflation remain “broadly balanced” while inflation expectations remain well anchored. Credit conditions remain “subdued”.
The ECB president urged the European authorities to implement plans for banking union quickly.
And we’re off with the questions. And it’s on whether the ECB is ready to give forward guidance, to which he replies that the ECB is already doing so, as has said that the key official rate is to remain low for extended period of time
And after that https://twitter.co…352767727192117248
After questions on forward guidance, we move on to the market for asset-backed securities and SME financing.
Mr Draghi emphasises that the ECB is working with the European Investment Bank on policies to allow smaller businesses on the eurozone periphery more access to loans. The EIB is expected to take the lead here.
He’s also asked about the OMT, the ECB’s bond buying facility that can potentially buy an unlimited amount of eurozone government debt but has so far bought zilch. He says nothing that he hasn’t already said many times before.
More on forward guidance. Why did the ECB plump for saying that policy would remain loose for an “extended period of time” in today’s statement?
Mr Draghi says the decision to do so was unanimous. Here’s the language from the statement in full:
“The Governing Council expects the key ECB interest rates to remain at present or lower levels for an extended period of time. This expectation is based on the overall subdued outlook for inflation extending into the medium term, given the broad-based weakness in the real economy and subdued monetary dynamics. In the period ahead, we will monitor all incoming information on economic and monetary developments and assess any impact on the outlook for price stability.”
Plus a link to the statement in full: http://www.ecb.int…l/is130704.en.html
He emphasises that “key” also includes the rate on the deposit facility
Therefore, “it is included in the options for the future”
So the ECB is linking its forward guidance on interest rates to three variables: inflation, the economy, and credit conditions.
The ECB is sounding a lot more dovish than expected here. Very surprising.
Not so surprising is that the euro is moving lower.
Draghi says the objective to has always been maintain price stability in the medium term and that this can go in both directions. In that sense, he says, the economy is in a sense part of this. He says the ECB always views growth as based on price stability, and has always been part of the so-called two pillars of monetary policy
The euro has fallen sharply. This from the FT’s currencies correspondent Alice Ross:
The euro hit its weakest level since May after the European Central Bank said that it expected interest rates to remain at or below their current levels for an extended period of time.
The single currency nearly 1 per cent to dip below $1.29 after Mario Draghi, ECB president, said that the subdued outlook for inflation, weakness in the eurozone economy and subdued monetary dynamics had led the central bank to inject a downward bias to interest rates.
Draghi says that what happened in last month is that monetary tightening has taken place in various segments of the interest rate curve. He goes on to say that the economy is still going down but at a slower pace. He says that the ECB is not reacting to decisions by other central banks
The FT’s own Michael Steen asks another question about the ECB’s dovishness today. How can it not be seen as a reaction to Fed communications on tapering given that this is what has triggered the rise in global government bond yields?
Mr Draghi says he is “acting in euro area monetary policy jurisdiction”.
“It’s not that we react to other central bank’s communications. We react to changes in the medium term outlook,” Mr Draghi says. “How do we best react to increased volatility? Is it going to be a transitory change or short-term volatility or significant permanent changes. That’s what justifies our forward guidance today.”
On Portugal , Draghi believes that the country has achieved “very remarkable results, it’s been a painful route and the results have been quite remarkable if not outstanding.” He said credit is due to the government and former, recently resigned finance minister, Vítor Gaspar. He adds that one should be reassured by his replacement Maria Luís Albuquerque who has been in attendance at eurogroup meetings and believes that Portugal is in safe hands.
Forward guidance, it would seem, is contagious. FT Alphaville on how the ECB has caught the bug that has also infiltrated the Fed, and earlier today, the BoE:
David Keohane: This feels really rather significant.
Attempts to draw Draghi out on duration and more specifics were met with quick slapdowns — “if you ask that question, you didn’t really listen to my statement” — and the rather noteworthy fact that this decision was unanimous.
Or to put it another way from Bloomberg https://twitter.co…352777695555371009
On OMT, he says, that it has produced “universally acknowledged benefits for everybody, there have been governments that have used their time well and others less well. That’s their responsibility.”
Mr Draghi really resents these tough questions on his baby, the OMT.
“OMT has produced universally acknowledged benefits,” the ECB president says, slapping down a journo who questions whether conditions might have been better without it.
In short, that was an awfully dovish presser.
Against expectations from the majority of economists, the ECB came up with its own version of forward guidance today after years of telling journalists and markets that they “never pre-commit” on the direction of interest rates.
The euro is now 0.8 per cent lower against the dollar today, hovering around €1.2901.
He also discussed negative deposit rates and emphasised that 0.5 per cent was “not a floor” for its main interest rate, suggesting further rate cuts might be on the way.
That’s all from us. Thanks for tuning in.