Emily Cadman Closed Live blog: Mario Draghi takes questions

Welcome to our live coverage of ECB president Mario Draghi monthly press conference. Earlier the ECB kept its rates on hold for the fifth month in the row, despite inflation falling to its lowest level in more than four years. Follow the questions and reaction live here with deputy FT.com news editor Lindsay Whipp and economics reporter Emily Cadman.

To no-one’s surprise, the ECB kept its interest rates on hold this afternoon.

The central bank’s main refinancing rate remains at its record low of 0.25 per cent, despite the recent dip in inflation to 0.5 per cent – about a quarter of the ECB’s target of just below 2 per cent. The deposit rate on reserves held at the ECB stayed at zero.

ECB president Mario Draghi will be taking questions from the press at 13:30 London time.

More on the decision here from FT’s Claire Jones in Frankfurt ECB holds interest rates in spite of rising risk of deflation

While Mr Draghi has recently attempted to talk the euro down, the market’s haven’t been listening, with the euro trading near its highest level against the dollar in more than two years.

The strength of the euro, which has reduced the price of imports, has made it harder for the ECB to reach its inflation target of just below 2 per cent. It currently stands at 0.5 per cent in the year to March – the lowest for more than four years.

And Draghi is up…

As Mr Draghi opens his remarks, the euro is at $1.3769, flat on the day, says Michael Hunter over on our markets desk

Nothing new so far in Draghi’s opening remarks: subdued outlook for inflation, expect long period of low rates.

But that the ECB stands ready to use unconventional monetary policy if required…

Draghi reiterates last month’s estimates for inflation reaching closer to 2 per cent towards the end of 2016

Draghi argues that inflation is likely to pick up in April: effectively arguing that the 0.5 figure in March reflects the early arrival of Easter last year, a time when businesses tend to raise prices.

Draghi argues euro’s countries have made important steps in fiscal policy, and that government debt will start to decrease inline with the stability and growth pact – but goes on to read out a list of things that are still needed to be done…

That’s the end of the opening statement: the Q&A is now about to start

In from our market’s desk:

The shared currency has made gains as Mr Draghi’s dovish remarks remained vague. It reached a session high of $1.3798, but has slipped back to $1.3780. The spike was very short lived

As Mr Draghi described the discussion prior to the rate call as “rich and ample” in answer to a question from the FT’s Claire Jones, the shared currency moved down to a session low of $1.3749 – that’s a loss on the day of 0.1 per cent

Draghi says that the exchange rate is important for monetary policy. He stresses that it is “not a policy target but increasingly important factor for price stability”, so it doesn’t link medium term assessment with precise level of exchange rate

He also says that there was a discussion of QE at the meeting today

And he clarifies that the ECB “hasn’t finished yet with our conventional measures” of monetary policy and that there are also unconventional instruments within its mandate to deal with the slowing price pressures.

Draghi says there were difference in view on whether the lower than expected March inflation numbers changed the medium term outlook, but in the end the council agreed more information was needed.

He goes out of his way to list other topics discussed – including lower interest rates and QE – repeating “There was an ample, rich discussion”

Draghi confirms that it was the easter and energy factors that affected March’s inflation figures and “we will see in coming months” what happens with prices

He defended the ECB’s forward guidance, saying that short term rates and the medium term forward curves have been stable, and if you judge the success of forward guidance on those terms then he believes that the governing council would define it “as having been quite successful”

Within that defence he emphasised that there has been stability in these rates despite monetary policy shifts in other jurisdictions and the effects on EMs

Pushed for more details of the discussion of QE, Draghi plays a straight bat and instead returns to inflation, arguing much of the low inflation is due to lower energy and food prices. He adds that low inflation isn’t always negative as it can support real disposable income.

Draghi reiterates that he doesn’t see Japan-like deflation in the eurozone, but that this “doesn’t mean the governing council shouldn’t remain unconcerned” and he says that is why there was discussion of QE in today’s meeting.

While Claire Jones is on the floor in Frankfurt we are relying on the ECB’s live feed of the press conference – which is currently not working at FT towers. Apologies for the short interruption.

Here is the full text of Draghi’s introductory statement

And we’re back

Draghi takes a little dig at IMF managing director Christine Lagarde’s call yesterday for the ECB to adopt looser monetary policy:

“The IMF has been extremely generous in their opinions in what we should and should not do”

Details about what she said here:
Stock markets hit post-crisis highs as IMF warns on growth

Draghi was asked about the use of underutilised capacity as only recently highlighted in opening statement. Draghi says that the opening statement is more explicit than last month. He says: “This reflects fact that even though we are witnessing improvements and quite continuous improvements oin the real side of the economy, both in hard data and survey data, we have evidence there is plenty of slack.”

“We see output gap that is pretty wide and that only gradually closes towards end of medium-term horizon. That’s the reason why we have to have a growth rate in coming months higher than the potential to close the output gap which weighs on demand and therefore price stability. ”

Asked about the flow of credit, Draghi argues that there is a flow of new credit, but this is obscured by redemption of old loans. He quotes figures from an un-named bank that they foresee a 4.5% expansion in new credit this year, but redemptions of 3%.

”There is still deleveraging that has to take place”

Draghi refuses to say what type of additional measures he or the governing council might prefer to pull out the toolbox should they decide to do that

This from Andrew Wilkinson at Interactive Brokers

Euro traders left clueless as Draghi threatens nothing

Currency traders were put through their paces during Draghi’s press conference Thursday. The ECB left its benchmark rates unchanged, failing to grasp the nettle and stimulate the economy by opting for a negative deposit rate. The policy statement did, however, appear to take a step closer to adopting quantitative easing, which Mr. Draghi said culminated this month in a “rich discussion” on the topic. Last month, he said, there was no discussion on the topic. The sensation that a strengthening currency has started to feed through to threateningly lower inflation has shifted opinion around the Eurozone with many suggesting the ECB will ultimately move to buy bonds, much like other central banks in an effort to stimulate growth. Despite the discussion, the ECB failed to announce a move in April. QE might weaken the euro currency, while failure to act might lift the unit. Such failure to act might make the onset of QE inevitable in the future. As a result … traders haven’t got a clue what to do with the euro currency!”

And this from Ken Wattret of BNP Paribas

the ECB is clearly not there yet when it comes to QE. Still, the signals from today’s press conference are very clear: the issue has become much more prominent in ECB thinking and the sensitivity to downside risks to price stability has palpably increased.

About time too!

Regular readers will be aware that we have been calling for QE in the second half of this year for some time now, on the basis of our forecast of a downward deviation in the path of inflation relative to the ECB’s baseline scenario in the months to come. Today’s comments show a marked shift in the ECB’s willingness to be transparent about QE and the circumstances in which they would be willing to use it – and are supportive of our non-consensus call.

While there was nothing in the way of policy action today, the press conference nonetheless represents a further step towards policy action from the ECB, potentially to include more radical measures. An update on our expectations for policy going forward will follow shortly.

And the final question is about the design of a QE programme: what does Draghi think about buying private debt:

”It is not easy to design a program of QE on private debt that is large in size and doesn’t have risks for financial stability” he says, then swiftly moved on to say that there needs to be reforms in the ABS market to revive it. The European market for securitisation has been all but closed for business since the crisis, when the practice of slicing and dicing of loans into packages known as asset-backed securities was blamed for letting problems in the market for US subprime housing loans spread through the global financial system.

Details of the background here: EU to ease rules on ‘toxic sludge’ to boost credit

To sum up then: while nothing changed on the policy front this month, the ECB is now discussing QE, it’d be very surprising if they weren’t at this stage. He implied that the governing council had differing views on how to design a programme of QE. The dovish tone has translated in the markets as a slightly weaker euro – see chart below.

That’s it from us for this month. Thank you for joining.