Closed ECB June rate decision – as it happened

The European Central Bank is “ready willing and able” to do more to revive growth and inflation in the eurozone, as it inched up its inflation forecast for the 19-country bloc this year.

In its latest June monetary policy meeting, the bank held fire on further interest rate cuts or stimulus measures, but announced it will begin buying up corporate bonds on June 8 and launch its round of cheap loans to the banking system (TLRTOs) on June 22.

Policymakers also refrained from deciding to restate the central bank’s lending operations to Greek banks, deciding to wait for further progress on the country’s bailout reforms.

Here’s the best of the June meeting:

Summary

  • ECB stands “willing, ready and able”: to increase stimulus if necessary. Brexit is one possible risk to financial markets conditions, said Mario Draghi, who repeated the ECB “is ready for any outcome” from the EU referendum.
  • No goodies for Greece: Greece will not receive an immediate restoration of ECB lending to its banks this month. Instead, policymakers will wait to see if Athens manages to pass its latest set of prior actions before restoring a waiver on Greek government bonds. This will require another meeting of the governing council.
  • Small inflation revision: The ECB did not deliver any major improvement to its inflation forecast despite the rising price of oil and the effects of its stimulus measures kicking in.


Hello and welcome to today’s live coverage of the ECB’s latest monthly meeting which comes to you from Vienna.

We’re expecting the ECB’s decision on interest rates at 12.45pm to be followed by a press conference with Mario Draghi at 1.30pm.

Analysts expect no change on the monetary policy front for May, but the Q&A with the Italian should be interesting. Mr Draghi is expected to be quizzed on the ECB’s latest moves on Greece, its updated economic forecasts, and the potential impact of Brexit on the central bank’s outlook.

Stay tuned.


A dove or a hawk?

Mario Draghi faces the rather novel task of delivering his latest thoughts on monetary policy amid a back drop of reasonable economic growth in the eurozone. The currency area grew by a robust 0.5 per cent at the start of the year, with unemployment also falling to a five year low.

The ECB’s latest staff forecasts are expected to show minor improvements in the growth and inflation outlook stretching out until 2018. That should be good news but in the topsy turvy world of central banking, it could also suggest the ECB might be ready to taper its stimulus measures before the middle of 2017.

That gives Mr Draghi the envious task of trying not to sound too upbeat to prevent spooking markets, but not gloomy enough to play down the eurozone’s recovery.

Gilles Moec at Bank of America explains:

Too bullish forecasts could be read to mean there is no need to add more stimuli beyond March 2017; too bearish forecasts could make it hard to justify no action without losing some credibility”, says Gilles Moec at BAML.


ECB keeps all rates on hold

No surprises as the central bank has decided to hold pat on any further interest rate measures in June.

Here’s the statement:

At today’s meeting, which was held in Vienna, 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 0.00%, 0.25% and -0.40% respectively.


ECB to start corporate bond-buying on June 8

The ECB will begin its first ever round of corporate bond purchases on June 8. Having announced the measures back in March, the central bank will be dipping its toes into the market next week.

[You can read more about the mechanics of the programme here

It will also launch its programme to provide cheap and negative loans to the banking system (TLTROs) on June 24.


Mario Draghi’s press conference starts at 2.30pm CET and you can watch it here


Watch to watch out for: growth and inflation upgrades

The ECB’s latest staff forecasts are expected to project slightly higher consumer prices after the bounceback in the price of oil since its last calculations made in March.

Analysts expect this will help the ECB hit its target of near but below 2 per cent inflation by end of its forecast period in 2018.

Here’s the current state of the estimates:


More action to come in September?

Analysts from Citibank think today’s (likely) slightly higher GDP and inflation forecasts won’t close the door to more stimulus further down the line…

We still believe that the persistence of very low core inflation and the prevalence of downside risks to economic activity on a global basis points to more accommodation. We suspect that the door will remain wide open to further stimulus, most likely taking the form on Sep 8 of a six-month extension of the APP, and the possibility of modest cuts in the main refinancing rate.


Slaying of the hawks

Claus Vistesen at Pantheon thinks any expectations of a hawkish turn from Mario Draghi are unwarranted:

Mr Draghi will strike a very dovish tone to counter expectations that the ECB is changing course, and we also think the president will re-emphasize that downside risks to inflation and growth remain. In short, he will repeat that “rates are set to stay low for an extended period beyond the end of QE”. The ECB is not about to make a hawkish u-turn, but expectations and starting points matter.


Will Greece get a break?

One of the main things to watch out for is a restoration of the ECB’s lending operations to Greek banks.

This was taken away at the height of the country’s debt crisis woes back in February 2015. But with Greece poised to receive a fresh injection of bailout funds later this month, the ECB could now restore a waiver on the country’s junk rated government bonds.

This would allow lenders to access cheap ECB loans again, having spent the last 16 months living off an emergency credit line.

Even if the waiver is not restored today, analysts expect the ECB to make positive noises about its restoration at some point this month.


Here’s the latest CPI data for the eurozone – core inflation has stabilised but it’s hardly roaring back…


Mario Draghi begins

The Italian is in place and the press conference begins.

He begins by repeating that the ECB’s bond-buying measures will continue until or beyond the middle of 2017.
He adds that more details about the corporate bond buying will follow the press conference. They will begin on June 8.


“The recovery is gradually proceeding”

Mr Draghi says the ECB’s upcoming measures on corporate QE and lending to banks which both start this month will add to the stimulus effects to the eurozone economy.

https://twitter.com/ecb/status/738346980489986048


The ECB’s head of press (formerly of the FT) has little sympathy for those complaining the press conference started early…

https://twitter.com/michaelsteen/status/738347326826250240?lang=en-gb


Growth forecasts revealed

https://twitter.com/ecb/status/738347930176917504

“We expect the economic recovery to proceed at a moderate but steady pace” says Mr Draghi as the ECB releases its latest calculations for GDP.


British referendum a “downside risk” to the recovery

The ECB has upgraded its GDP forecast for this year, but downgraded it for 2018. The Italian cites the UK’s referendum as a downside risk to growth.


Inflation forecasts inch up

That’s a surprise. Inflation in the next two years remains unchanged from the ECB’s March forecast. Analysts had expected slightly better oil prices and the effects of ECB stimulus to drive prices slightly higher closer towards 2 per cent in 2018.


Dovish Draghi

Nick Kounis at ABN Amro says the Italian central banker’s performance is another one for the doves:

https://twitter.com/nickkounis/status/738349879546806277


And we’re onto the questions. First up, a Q on the risks to inflation. Draghi says there’s no dramatic shifts. As for second-round effects, he says there’s still not much sign, with possible exception of Germany.


Question

Does the ECB need ever increasing amount of stimulus to retain sluggish growth levels? Are unchanged forecasts a sign that any additional easing will be pointless?

Answer

We think our measures have been “very effective” says Mr Draghi, who still laments the slow pace of structural reforms from governments in the eurozone. If governments had done more to overhaul their economies, monetary policy would be more effective than it has already been, he says.

Mr Draghi adds that QE measures have prevented a “severe” downturn in financial conditions from March and denies that growth has been “sluggish” so far.


No decision on the Greek waiver

The ECB has not made a decision to restore its lending operations to Greek banks today says Mario Draghi.

“The governing council acknowledged the significant progress that has been made”, says Draghi.

Instead, policymakers will wait until Athens manages to pass its latest set of prior action before restoring the lending facility for Greek lenders, he adds.

https://twitter.com/ecb/status/738352065798373376


Here’s Mario Draghi’s full opening statement


The inevitable Brexit question

What planning is the ECB doing for a Brexit?

Draghi replies: “The ECB is ready for any outcome. The UK and Europe and eurozone are mutually beneficial. The ECB has a view whereby the UK should remain in the European Union, because the EU would benefit and UK too. The ECB is ready to all contingencies.”


Another meeting for Greece

The FT’s Claire Jones pushes Mr Draghi for some timing on the restoration of the Greek waiver.

The decision will require another policy meeting from the Governing Council and will need to follow a positive decision on disbursement from the European Stability Mechanism, says Mr Draghi.


A convincing recovery?

Are you convinced by the recovery of the eurozone as shown by GDP growth of 0.5 per cent at the start of the year?

Answer

Mr Draghi says the ECB has yet to see the full effect of the measures it has begun and those which are still to come this month.

“We expect the recovery to continue at perhaps a lower pace but still a good figure”, he says.

He notes that wage pressures in the eurozone, with the exception of Germany, remain weak and have kept core inflation at the start of the year weaker than expected.


Another question on inflation

Are you sending a message more stimulus will be needed, given the inflation forecast still below target?

Draghi says we must focus on implementation of the measures already announced. Then we’ll see.


Why are national central banks still needed in the eurozone?

Answer
Mr Draghi says the decision making of the ECB is made through the “collective wisdom” of the national central banks – 19 of them across the bloc.

“There is not one brain in Frankfurt that decides everything” he adds.


Some scepticism on Draghi’s “wait and see how the current stimulus works” approach

https://twitter.com/jonathanalgar/status/738354909028995073?lang=en-gb


Question on interest rates and bubbles

Draghi says it’s clearly a concern for the eurozone’s savers (& savers in US, Japan etc) But they’re necessary because growth is weak. “For interest rates to be higher tomorrow, they have to be lower today.” The ECB has a mandate & must use all intruments to deliver it.


Stocks slide on Draghi

From FastFT

European stocks have dropped into the red, while German bonds have jumped after European Central Bank President Mario Draghi warned of an economic slowdown in the second quarter.

The Eurofirst 300 has dropped 0.4 per cent since the press conference got underway to a low for the day.

10-year German Bund yields fell 2 basis points (or 0.02 percentage points) to 0.13 per cent since Mr Draghi took the stage, edging closer to the 12-month low of 0.08 per cent it hit in April.

The euro meanwhile climbed 0.4 per cent to $1.1199, recovering from earlier losses to trade up 0.2 per cent on the day.


Why is the euro not falling?

Mr Draghi repeats that the exchange rate is not a policy target of the central bank. It is the outcome of several factors, says the Italian, including factors such as the price of oil, diverging monetary policy, and the impact of the UK’s looming referendum.

https://twitter.com/ecb/status/738356150987587585


Can the eurozone forge ahead with integration under the current political conditions?

Mr Draghi dodges the question by saying this is an issue for politicians.

But if the monetary union remains incomplete it remains “fragile and vulnerable to shocks”, he stresses. Such fragility will hurt growth in the currency area in the long run adds Draghi, remaining non-committal in his vision for the eurozone’s future.


Greece cannot access cheap ECB loans this month

No waiver means no TLTROs for now, notes Frederik Ducrozet at Pictet. These loans will begin on June 22 for the rest of the eurozone’s banks and allow them to borrow for free from the ECB.

https://twitter.com/fwred/status/738354655730622465


The End of Cash?

Draghi asked about German debate on freedom and the abolition of cash. Draghi declines to get into the philosophy, but stresses the fact the ECB is scrapping the €500 note has nothing to do with the end of cash.

If you’re wondering what that’s all about, here’s a primer from the FT’s Claire Jones in Frankfurt.

The ECB’s decision to scrap the printing plates for the note, which has not been produced since 2014, is likely to anger public opinion in Germany, a country where banknotes are viewed as a symbol of personal freedom, and Austria. Both countries are culturally attached to cash in ways that distinguish them from other eurozone members, and much of German public opinion is already at odds with the ECB over the central bank’s ultra-low interest rates.


ECB ready, willing, able to do more

“We would not hesitate to act without undue delay” to increase stimulus measures says Mr Draghi.

He also dismisses the notion the ECB is running out of bonds it can buy under its QE scheme.

“We see ample liquidity” he says. Should the ECB hit any buffers, there is enough flexibility to adjust the rules of the QE to meet its desired €80bn a month size.

“We are willing, able and ready to do so” he adds.


Will anyone join the euro again?

This Q is referring to the recent convergence report. Draghi says if you look at the euro barometer poll, the majority of citizens in countries not yet joined are still in favour.


Are negative rates hurting bank deposits?

There is no evidence that negative rates have led to mass deposit withdrawals in Europe, says Mr Draghi. In fact the experience of countries in the Nordic region proves that negative rates do not lead to any rush towards cash.


Will the ECB revise its inflation target?

Any move to raise or lower the near 2pc inflation target at the ECB will irreparably damage the central bank’s credibility in the eyes of consumers, says Mr Draghi.

“A revision upward would test our credibility because people would say you want 3 per cent when you can’t reach 1.5 per cent”, says Mr Draghi.

“Each revision, on both sides, undermines the credibility of the central bank for different reasons.”

“The reasons for keeping the objective are overwhelming” he adds.


A question on structural reforms

It’s getting harder to bring inflation to target just with monetary policy. How could structural reforms get going?

Draghi says it would take the ECB less time to meet its objective if structural reforms were in place. It’s beyond our competence to decide which reforms are needed by each country, he says, but it’s important. Meanwhile, he says they’ve discussed on many occasions whether monetary policy affects the incentive to take structural reforms – but on balance don’t buy it.


That’s a wrap

The final question is a niche regional one as Mr Draghi is asked which structural reforms are best for his host Austria to implement.

He remains diplomatic, saying only that countries themselves “have the best knowledge, and competences to decide which reforms should be implemented”.

And with that, June’s press conference ends.


Francesco Papadia, a former director general at the ECB notes Mr Draghi’s slight dig at Germany’s unbalanced economy today:

https://twitter.com/FrancescoPapad1/status/738360094019223552


What did we learn?

1) ECB still “willing, ready and able” to increase stimulus if necessary. Brexit is one possible risk & the ECB is ready for any outcome.

2) No goodies for Greece: Greece will not receive an immediate restoration of ECB lending to its banks this month. Instead, policymakers will wait to see if Athens manages to pass its latest set of prior actions before restoring a waiver on Greek government bonds. This will require another meeting of the governing council.

3) Growth revised up a touch for this year (from 1.4% to 1.6%) but down slightly for 2018. The 2nd quarter of this year may be a little worse than the 1st.

4) Inflation remains muted: despite rising oil prices, the ECB’s latest forecasts show only a 10 basis points (0.1 percentage points) revision this year. In the longer term, the outlook remains unchanged.


“The perfect balancing act”

Another consummate performance from Mario Draghi today says Claus Vistesen at Patheon but it will be act that will get harder to manage as the months go on, he warns:

This balancing act will be more difficult later this year as inflation recovers. Either the central bank must upgrade its forecast, or add further stimulus. We lean towards the former outcome. Inflation likely will increase faster than the market and the central bank expect, in the short run, and growth will remain resilient. As a result we don’t expect further stimulus this year. We concede, though, that the bar for an extension of QE in Q1 next year will be low, given that inflation probably will be well below the 2% target when the current QE program is expected to end in March 2017.


Waiver a ‘big political loss’ for Tsipras

Mujtaba Rahman at Eurasia Group notes that today’s non-decision on Greece’s bank waiver will be a setback for the Syriza government:

Reinstatement (of the waiver) was important as it carried both symbolic and substantive benefit. For investors, it would have signaled growing ECB comfort with Athens reform path and provided a clearer pathway for Greece’s eventual participation in QE. And in the near-term it would have been a nice liquidity boost for Greek banks and the real economy. This is a big political loss for Tsipras and his government.

Greek banks stocks are falling and yields on its two-year paper have jumped following the decision to delay from the ECB.

National Bank of Greece shares have dropped 6.6 per cent to trade down 3.9 per cent on the day, while Eurobank is off 3.2 per cent and Piraeus Bank has slipped 3.7 per cent.


ECB will have to “top up” monetary stimulus

Carsten Brzeski at ING thinks the relatively unchanged set of economic forecasts on GDP and inflation means the ECB will have to pump more stimulus measures to revive the flailing eurozone.

The latest projections were explicitly conditioned both on existing stimulus and also those measures that have been announced, but are yet to be implemented. This means that there currently is a high chance that the ECB will eventually have to top up its monetary measures, rather than starting tapering early. There are only two, currently rather unlikely, scenarios in which the ECB would start tapering, at least after the official end of QE in Spring 2016: either growth and inflation come in at or above, rather than below (as has been more common), the ECB’s forecasts, or the Eurozone recovery becomes suddenly self-sustained.


Fed and Brexit driving markets – not the ECB

Analysts at Nordea note that today’s steady as she goes performance from Mario Draghi means market attention will turn to the possibility of an interest rate hike from the Federal Reserve on June 16, and the UK’s EU referendum on June 23:

Assuming Brexit is avoided, higher US yields on the back of more tightening priced in from the Fed will put some upward pressure on German yields as well. The big picture for German yields has not changed, however. Continued ECB bond purchases amidst lower supply volumes will push German yields lower during July and August. Any short-term move higher thus presents a buying opportunity in German bonds.

EUR/USD has more downside left irrespective of the Brexit vote.


Summary

That’s all for today’s live coverage of the June ECB meeting. Here’s a summary of the main developments

1) ECB stands “willing, ready and able”: to increase stimulus if necessary. Brexit is one possible risk to financial markets conditions, said Mario Draghi, who repeated the ECB “is ready for any outcome” from the EU referendum.

2) No goodies for Greece: Greece will not receive an immediate restoration of ECB lending to its banks this month. Instead, policymakers will wait to see if Athens manages to pass its latest set of prior actions before restoring a waiver on Greek government bonds. This will require another meeting of the governing council.

3) Small inflation revision: The ECB did not deliver any major improvement to its inflation forecast despite the rising price of oil and the effects of its stimulus measures kicking in.

The ECB’s latest forecasts show only a 10 basis points (0.1 percentage points) hike to average inflation this year. In the longer term, the outlook remains unchanged (see below):