Hello and welcome to the FT’s live blog on the European Central Bank’s monetary policy decision and press conference. All eyes are on the ECB as policy makers wait for an improvement in the eurozone’s recession-bound economy. By Claire Jones and Lindsay Whipp in London.
The governing council’s vote is due at 12.45 (BST) and ECB President Mario Draghi will meet the press at half past one.
Hello and welcome to the live blog on today’s European Central Bank governing council’s vote. The ECB is widely expected to hold its main rate at 0.5 per cent.
The decision is due out at 12.45 BST.
The ECB has, as expected, held its main interest rate at 0.5 per cent.
Here’s FT Frankfurt bureau chief Michael Steen’s take on the governing council’s decision to hold: http://www.ft.com/…-00144feab7de.html
The euro has edged slightly higher on news of the decision to hold.The FT’s currencies correspondent Alice Ross thinks bigger moves in the currency are yet to come:
Fast FT has prepared a handy guide on what to listen out for from ECB president Mario Draghi, who will begin speaking around half an hour from now.
With a “big bazooka” to boost lending seemingly out of the equation, something important to look out for is Draghi’s response on whether or not the governing council has given any more thought to negative rates.
Markets moved in reaction to Draghi’s comments at the May presser, which were taken as indication that the ECB is giving serious thought to cutting the rate it pays on deposits held at the central bank below its current level of zero.
A couple of data points out in the eurozone this morning. In Germany, factory orders dropped 2.3 per cent seasonally-adjusted in April, reversing the previous month’s gains. Here’s what Alexander Koch from Unicredit had to say about it:
The correction was driven by a setback in domestic intermediate and capital goods orders as well as in EMU demand. In contrast, foreign orders from other regions held up well.
After the jump in orders in the preceding two months of a total 4.5%, a breather at the beginning of the second quarter is no surprise at all. On a less volatile basis, new orders were basically flat in April versus 1Q13, confirming stabilization in industry. The strong up and down over the last two months was predominantly caused by bulk orders in the other transport equipment sector. Excluding this volatile component, orders were even up a solid 0.8% mom in April versus 1Q13.
French unemployment in the first quarter reached 10.8 per cent, the worst levels since 1998.
While we wait for Draghi to take his seat, let’s nip across the pond to the US, where Pimco’s Mohamed El-Erian has just published his expectations for Friday’s all-important non-farm payroll data. Writing for FT’s A List blog, he says:
With global equities selling off, tepid job creation would end up creating more turbulence and uncertainty.
This meeting will also see the ECB unveil its latest quarterly forecasts for growth (or the lack of it) and inflation. Watch out for what the forecasts say on where inflation is likely to be next year. Any indication that they think it’s more likely to undershoot the target, could be interpreted as a sign that the ECB is more likely to ease policy.
The previous round of forecasts, from March, are here. Forecasts for inflation next year were for something between 0.6 per cent and 2 per cent. The ECB’s target is for inflation that’s below but close to 2 per cent in the medium term.
Super Mario has just begun speaking.
Here’s a transcript of his remarks from the previous presser. Be on the lookout for changes in his rhetoric on negative rates, the plight of the eurozone’s small and medium-sized businesses and the euro’s strength.
The questions are about to begin. Here are the highlights of Mr Draghi’s opening statement.
On the forecasts, real GDP will shrink by 0.6 per cent this year — that’s more gloomy than in March. However the ECB’s more upbeat on growth for next year, expecting an economic expansion of 1.1 per cent. In the near term, economic survey data have “shown some improvement”. Export growth will be supported by a recovery in global demand, he says.
The midpoint for the inflation forecast for 2014 is unchanged at 1.3 per cent. The forecast for 2013, at 1.4 per cent, is slightly lower, reflecting the fall in oil prices. Inflation expectations are “firmly anchored”.
The rhetoric on government action on the fiscal crisis is largely unchanged, though Mr Draghi adds that countries should not backtrack on commitments to meet deficit targets unless there are “exceptional” reasons for doing so.
And here is the first question:
What is happening with possibility of doing something to restart the ABS programme and was the decision on interest rates unanimous?
Draghi responds that had ample discussion on various measures that could be utilised to repair the transmission channels of monetary policy, whether ABS, enhancing additional credit claims framework among others. He adds that there was also a discussion on the possibility of negative rate on deposit facility and that the bank is now technically ready for that. However, he said there are several unintended consequences. And at this point in time he sees no reason to act, so the various measures are being kept in stock.
On the rate decision Draghi said that “by and large” they agreed there wasn’t anything that justified taking action at any time.
Are central banks responsible for volatility in financial markets? Draghi’s response: the ECB isn’t, but the Fed is.
“Frankly the ECB hasn’t done anything to increase the volatility in financial markets…we are taking a much more conservative stance [than the other major central banks],” he says.
He adds, however, that there has been an increase in global volatility stemming “from the announcement of decisions that may be taken in the coming months”. Ie, the indications from the Federal Reserve that it could taper its bond purchases.
He also says that the flexibility of the labour market has been “placed squarely on the shoulders of the younger population.” The ECB president offers little on solutions however, saying only that it “requires investments in human capital.”
On the fixed rate full allotment, he reiterated that it would be maintained for whole of next year until July 2014 and as long as needed. He adds that it it needs to be prolonged beyond that date that would be done.
The decision to not take further action today was not unanimous. Draghi says only that there was “a consensus” among members of the governing council.
And on capital controls in Cyprus, Draghi says that the ECB is aware they distort the market profoundly in the euro area and it made its view clear at time. The sooner can be lifted the better but it is not the central bank’s responsibility.
Wow. Note to journos: don’t dis the OMT otherwise you get Draghi in full braggadocio mode.
“The OMT has been probably the most successful monetary policy measure undertaken in recent times,” he says. Deflation risk is “over”, he claims. Look at the Target2 balances, he adds.
The ten year bond yields have “declined spectacularly” in several countries but went up in Germany. “The OMT has brought stability not only to the markets in Europe but markets worldwide. Looking backwards one can only be quite satisfied,” he says.
He also warns to not get too optimistic about current market conditions. If there are no structural reforms from government, no improvements in competitiveness, then the recent gains will unravel.
Alice Ross notes the rather unusual reaction in FX markets to Draghi’s (stronger) rhetoric on negative rates:
We’re back to the German constitutional court issue: Draghi says that he wasn’t specifically asked to speak at the hearing. But that the ECB decided that executive board member Jörg Asmussen would be the best person to do so as he in charge of legal affairs on board and knows German legal system better.
And to LTRO repayments. Draghi says there is a continuing decrease in excess liquidity, and continues to experience repayments in LTRO, reaching slightly below 60% of the net injection that took place in early month of 2012. He argues that this is a positive sign because shows that financial conditions continue to normalise and banks don’t need to rely only on ecb for funding as they can get from other sources as well.
What are the drivers of economic recovery? For Draghi there are three: exports, the ECB and lower inflation.
Exports have increased in almost all countries, he says, noting Germany, Spain and Italy “especially”. Accommodative monetary policy “will find its way through the economy”. Low inflation, notably in oil prices, were increasing purchasing power.
Draghi is clarifying the rates decision. He says that the discussion was not on whether to cut rates, but whether there had been enough of change to grant action now. The prevailing consensus, he says, was a common assessment that the changes taken place over the month were not sufficiently one directional to grant action now.
On the forthcoming stress tests, Mr Draghi acknowledges that officials must avoid a repeat of the mistakes made in 2011 when governments agreed to the tests without having a backstop to plug the capital hole that the tests uncovered. “We want to make sure there is an explicit commitment [to cover any capital shortfall],” Mr Draghi says.
And on the ECB being “technically ready” for negative interest rates on the deposit facility, he again refuses to go into what might happen in the months ahead. He reiterates that “all the preparation” for venturing into the negative territory on deposit facility is there, and is not in a position to say whether that could be combined with other measures.
Mr Draghi is quizzed about the IMF’s mea culpa on Greece.
Does the ECB have any apologising to do? “Not really,” he says.
More on that IMF mea culpa. He notes that the Fund does not criticise the ECB in the paper.
He adds: “Often these mea culpa are mistakes of historical projections. You tend to judge things that happened yesterday with today’s eyes. When discussions were first taking place [four years ago], the climate was much worse than it is today.”
The ECB president also parries concerns over deflation. Not a problem, he says.
El Pais gets the last question and the reporter asks what more the ECB can do regarding inflation in light of the pain in Spain. Draghi repeats that he doesn’t see a problem with low inflation at the moment as it enables people to buy more things and that it isn’t as if the spectre of deflation is lurking.
He then goes onto talk about the importance of fiscal consolidation and how it’s unavoidable. He makes similar comments to last month talking about the ways to fiscally consolidate that doesn’t hurt growth – ie don’t raise taxes, but cut them, reduce unproductive government spending and make industry more competitive.
And he wants everyone to know that the ECB is aware of just how painful all this fiscal consolidation is.
That’s it for the questions. The main takeaways are:
– The growth forecasts for 2014 are slightly more optimistic.
– Draghi reiterated that the ECB stands “ready to act” on negative rates. The rhetoric was slightly stronger than last months, but oddly the euro rose on his comments.
- The decision to do nothing today was not unanimous. It was not just a discussion on interest rates, but on whether to take other forms of action now.
- Draghi was indignant when he was defending the OMT and the ECB’s records on Greece.
Thanks for tuning in. Bye from Claire Jones and Lindsay Whipp.