Closed ECB keeps rates on hold in April – as it happened

Germany European Central Bank

The European Central Bank has once again left interest rates and its quantitative easing programme unchanged following its governing council meeting.

Key points

  • ECB main rate held at 0.00%, deposit facility at -0.40%
  • QE bond buying programme runs till end of 2017 at reduced rate of €60 billion per month
  • Risks are still ’tilted to the downside’ says Draghi
  • Admits differences of opinion within council over strength of economic recovery
  • Draghi has a dig at Germany’s finance minister Schäuble over latter’s criticism of ECB


Hello and welcome to our live coverage of the ECB’s April rate decision. We are not expecting any changes to either interest rates or the QE programme so once again the messaging from ECB president Mario Draghi will be key.


The meeting today comes after Spanish inflation data came in stronger than expected this morning. This was partly due to a base effect on energy prices but also due to a spike in prices in the tourism sector.

German inflation figures are expected at about 13:00 BST but the regional figures this morning point to an acceleration in price growth. Inflation is expected to rise from 1.6 to 1.9 per cent.

If he follows the same pattern as in past meetings Mr Draghi is likely to say that he is waiting for Eurozone inflation to be “self-sustaining” and “sustainable”. He wants to see domestic price pressure that would continue without the influence of the ECB’s policies.


A tale of two eurozones: economic confidence hits 2007 highs but…

The brightening outlook for the eurozone economy will be front and centre of today’s press conference. ECB president Mario Draghi is likely to be quizzed by journalists on his take on a still robust recovery which looks to have been given another boost by the prospect of Emmanuel Macron as France’s new president.

To highlight the point, a survey from the European Commission this morning showed economic confidence in the bloc is at a near decade high. It is the latest batch of survey data which points to an acceleration in growth at the start of the year.

But as many eurozone watchers observe, survey data seems to be running ahead of the “hard” economic data from the bloc, hinting at relative over-optimistic signals from things like consumer sentiment surveys or purchasing manager’s indices.

Today’s EC numbers point to a jump in euro area GDP growth from 1.8 per cent at the end of last year to close to 2.5 per cent in the first quarter, according to figures from Capital Economics and would mark a six-year high.


A shorter take on those economic sentiment figures from Alberto Gallo at Algebris Investments

https://twitter.com/macrocredit/status/857519918572605440


The market’s expectation of a victory by centrist Emmanuel Macron in the French presidential election presents a dilemma for the ECB’s governing council, according to our Frankfurt correspondent Claire Jones in her preview of today’s meeting.

Mr Macron’s success in winning the first round of the French contest last week was welcome news to the ECB’s governing council, which was aghast at the prospect of a second round featuring the far-right Marine Le Pen and left-winger Jean-Luc Mélenchon.

But a win for Mr Macron in the run-off May 7 will embolden the council’s hawks — led by German officials — to call on Mario Draghi, ECB president, and Peter Praet, chief economist, to start talking seriously about reining in the bank’s record-breaking monetary stimulus.

The key question for markets and investors, she says, is whether Draghi drops his customary reference to risks being ‘tilted to the downside’ and instead says risks are now ‘balanced’.


When will Draghi shift his ‘forward guidance’?

ECB chief Mario Draghi is expected to remain cautious on the eurozone’s growth and inflation outlook this afternoon.

Sandwiched between France’s two presidential election votes, analysts expect Mr Draghi to tread a cautious path and keep the ECB’s “forward guidance” on rates unchanged at today’s meeting, repeating that growth risks remained skewed to the downside.

Instead, ECB watchers are penciling in the bank’s June meeting as the most likely moment the central bank will shift into “neutral” gear. This would include a shift in the current language, removing the need for rates to move “lower” if necessary and cutting back on the time frame for the guidance from the current “extended period of time”.

Marc Chandler at BBH notes:

Draghi is likely to reiterate the consensus judgment that while the growth prospects have improved, based mostly on survey data, prices have yet to find sustainable and independent (of the unorthodox monetary policy) path higher.

Francois Cabau at Barclays adds:

We are not expecting any policy change, but it is likely that the governing council will continue to exchange views on the forward guidance and the sequencing of exit strategies.

At the margin, we do not fully rule out the possibility that the negative bias of the forward guidance on rates is removed


Markets update: euro steady; equities slip ahead of decision

The euro is broadly flat against the dollar in the run up to today’s decision and press conference, while broader European equities are all in the red.

Here’s where we stand at publication time:

- Euro stable against the dollar at $1.0899
- German Dax falls 0.16 per cent
- France’s CAC 40 slips 0.25 per cent
- Italy’s FTSE Mib loses 0.5 per cent
- UK’s FTSE 100 declines 0.46 per cent


Analysts and traders will be watching out for any signs of an acceleration in the process of tapering, or phasing out, quantitative easing following stronger economic indicators, higher inflation figures and market expectations of political stability.

This meeting is the first after the ECB cut the pace of its monthly asset purchases from €80bn to €60bn, in April.

Franck Dixmier, AllianzGI global head of fixed income, says the markets may have questions about how this is affecting the composition of the ECB’s portfolio.

Based on data available earlier in the month, it appears that corporate-bond purchases are being maintained at a high level, which implies that sovereign-bond purchases are being reduced as a matter of priority. By taking this approach, which is similar to the Bank of England’s, the ECB is likely aiming to maintain optimum refinancing conditions for euro-zone companies.


Emoticon ECB keeps rates on hold in April

As expected, no shift to the ECB’s record low interest rates this month.

Mario Draghi and his vice president will be out in front of journalists to explain the thinking behind the decision in 45 mins.

From the FT’s Claire Jones in Frankfurt:

The eurozone’s monetary policymakers have kept their aggressive monetary easing in place ahead of the French presidential run-off between centrist Emmanuel Macron and the candidate for the far right, Marine Le Pen.

The European Central Bank’s governing council left its benchmark main refinancing rate at zero and the deposit rate at minus 0.4 per cent.

The region’s central bankers will continue to buy €60bn in mostly government bonds under a quantitative easing programme that will run until at least the end of this year.


The ECB’s statement is virtually the same as the previous two months. The only change at all is updating the “current monthly pace of €80bn” for quantitative easing to “the new monthly pace of €60bn” as announced this past December.

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 0.00%, 0.25% and -0.40% respectively. The Governing Council continues to expect the key ECB interest rates to remain at present or lower levels for an extended period of time, and well past the horizon of the net asset purchases.

Regarding non-standard monetary policy measures, the Governing Council confirms that the net asset purchases, at the new monthly pace of €60 billion, are intended to run until the end of December 2017, or beyond, if necessary, and in any case until the Governing Council sees a sustained adjustment in the path of inflation consistent with its inflation aim. The net purchases will be made alongside reinvestments of the principal payments from maturing securities purchased under the asset purchase programme. If the outlook becomes less favourable, or if financial conditions become inconsistent with further progress towards a sustained adjustment in the path of inflation, the Governing Council stands ready to increase the programme in terms of size and/or duration.

The President of the ECB will comment on the considerations underlying these decisions at a press conference starting at 14:30 CET today.


Waiting for Draghi

The markets remain unmoved given the lack of any surprises in the ECB’s statement. It now a case of waiting for the appearance of Mario Draghi in front of the press scheduled for 14:30 CET (13:30 BST).

You can watch proceedings here


Draghi stays dovish

Today’s restatement that the ECB will keep its rates at present “or lower levels for an extended period of time” keeps in place the forward guidance issued in March.

Despite few real market hopes this would change today, Jack Allen, economist at Capital Economics, thinks the forward guidance is now “more dovish than some had expected given the strength of the economy”.

He adds:

As a result, Mr Draghi is unlikely to change his overall message at the press conference.

In the opening statement he will probably highlight the weakness of core inflation, and again state that risks to the outlook remain skewed to the downside


Three things to watch out for today

Courtesy of Nick Kounis at ABN Amro:

In this afternoon’s press conference, look out for three additional key parts of the ECB communication:

1. underlying inflation pressures continue to remain subdued

2. a very substantial degree of monetary accommodation is still needed for underlying inflation pressures to build up

3. the risks surrounding the euro area growth outlook have become less pronounced, but remain tilted to the downside and relate predominantly to global factors.


Portuguese bonds are the star of the Eurozone bond markets today, heading to their highest price since December. Yields fall as price rises.

However Portuguese debt was surging their before the ECB announced their decision to keep rates on hold and is more to do with the generally better outlook for the Eurozone economy and investor hopes for a centrist government in France.

Overall, markets are unmoved by the ECB policy decision. The euro fell by a measly 0.06 per cent against the dollar after the announcement.


Press conference in t-minus 2 minutes

You can watch live here.


Mr Draghi is in the house and the press conference begins.


Draghi is reading out the statement from earlier.


FastFT’s Katie Martin aka the Draghi tie watcher has deemed his blue neckware the “Whatever It Takes” tie.

https://twitter.com/katie_martin_fx/status/857573388340146177


Euro bouncing around

As Draghi starts the Q&A session, Roger Blitz, the FT’s currency correspondent, has this on the European single currency:

The euro is bouncing around as Mr Draghi’s press conference unfolds. At one point it perked up by 0.3 per cent to $1.0928, although over the session it is 0.2 per cent higher. Although the euro is well supported by market confidence in a Macron election victory in France, ECB tapering is seen as the main driver of the currency’s next big advance.


Risks are still ’tilted to the downside’ says Draghi

Draghi says the euro area is “moving towards a more balanced configuration of risks” but they are still “tilted to the downside.”

Data since our meeting in early March confirmed that the cyclical recovery of the euro area recovery is becoming increasingly solid. At the same time underling inflation pressures continue to remain subdued and have yet to show a convincing upward trend, he said.

The ongoing volatility in headline inflation underlines the need to look through transient development… which have no implication for the medium term outlook in price stability.

If the outlook becomes less favourable or if financial conditions become inconsistent with further progress, we stand ready to increase our asset purchase program in terms of size of duration.

A very substantial degree of monetary accommodation is needed to cause a sustained increase in inflation, he says, but there also needs to be more progress on structural reform and more growth-oriented fiscal policy in order to reap the full benefits of the program.


Draghi: we don’t do elections

After a very dovish statement, the FT’s Claire Jones has the first question:

Did any rate-setters push to tweak forward guidance and has Mr Macron’s likely election changed anything?

“We don’t do monetary policy based on likely election outcomes”, responds Mr Draghi.

On the forward guidance, the Italian says that the governing council did have a discussion on the risks to the growth outlook, but not on inflation. “That is an important distinction.”

Mr Draghi admits that “some of the members had a more sanguine view” and others were more dissenting but in the end the final, unchanged, communication, was “unanimously” agreed upon.


Schäuble criticism ‘pretty ironic’

A zinger from Mr Draghi. Asked about the persistent criticism of the ECB’s policies from Germany’s finance minister Wolfgang Schäuble, Mr Draghi retorts that it is “pretty ironic” that supporters of central bank independence keep hitting out at the bank.

Emoticon Emoticon Emoticon


Some bureaucratic confusion

Asked if the ECB has removed its line on its outlook for underling inflation in its communications, Mr Draghi helpfully points out that it is still included, but is just on page 2 of the statement.

Glad we cleared that up.


No need to discuss tapering QE

Draghi is asked about the sequencing of the exit from QE. Is there any likelihood of a change? Could interest rates be raised before the asset purchase program is wound down?

He is also asked whether he could you make the same policy mistake as in 2011 and raise interest rates by focusing excessively on inflation and not on underlying economic conditions?

On exiting QE he says; there is no need to discuss this now. There is no evidence to alter our assessment of the inflation outlook. From today’s standpoint there is no reason to deviate from the indications we’ve given in the introductory statement.

Guidance relates not just to the conditions under which we’ll withdraw stimulus but also change interest rates.

From today’s perspective the negative rates have been powerful and the potential negative side effects have so far been limited.

In 2011, we had a high rate of inflation for several months. We do not have that now we have a very subdued underlying inflation rate and a volatile headline.


No talks of exit strategy

Mr Draghi bats off any suggestions that the governing council is talking about a QE-exit strategy to be released around June.

Instead he lists a series of economic achievements seen in last three years, including average quarterly growth of 0.4 per cent since 2013; the creation of 5m jobs; vanquishing deflation; and finally, the emergence of a “broad” recovery which is concentrated across northern and southern member states.

https://twitter.com/ecb/status/857579933933203456



Draghi is asked if the ECB has a track record of raising rates too early such as in 2008 and 2011? How does that affect policy today?

The answer is no it doesn’t affect us. We are young enough in our mental processes that we can make a difference between facts, assessments and history.


No discussion over repo markets

Another thing the ECB hasn’t discussed: distortions in the repo markets. Having made a tweak to its securities and lending programme at the start of the year, Mr Draghi said the governing council has held no further talk about how its policies are affecting market access to collateral as a result of its mass bond buying scheme.

For more on the complaints from some market participants about the ECB’s oversized role in the bond markets here’s the FT’s Thomas Hale.


No more clarity about the economic impact of Trump

Did you get any clarity about Trump while you were in Washington?

Not really. It would be premature to make any decision based on possible US policy. Perhaps the risk of protectionism may have somewhat receded. The second point is that markets are in the course of a reassessment of the US fiscal policy. I, frankly, wouldn’t feel like going beyond that.


Popular support for eurozone is high despite globalisation ‘losers’

Asked whether the ECB is concerned about waning support for the euro, Mr Draghi says he does not recognise any major backlash against the single currency as surveys suggest support for EMU is at record levels (70 per cent).

However, in the wake of major interventions from the European Commission about protecting people from the most harmful effects of globalisation, Mr Draghi says:

To ignore the social uneasiness would be a mistake. The IMF and Commission are quite aware and alert of this. Everybody would acknowledge that globalization has extraordinary benefits and created losers that were not taken into account for several years.

The Commission certainly should have more social consideration for ones that don’t gain and get harmed by globalisatoin


“The ECB continues to renew the appeal to undertake structural reforms”

Draghi is asked about structural reforms.

We have different roles, different tasks. Some structural reforms have been undertaken in several countries so the picture is not uniformly bleak.

While elections can interrupt these reforms there can be progress made on implementing legislation that has already been passed.

“The ECB continues to renew the appeal to undertake structural reforms,” he says


Draghi: we’re not ignoring elections

Having said that the ECB would not carry out monetary policy based on any “likely” election outcomes, Draghi says the bank is always cognisant of electoral outcomes:

We internalise the information that comes from the effects that political uncertainty may affect our medium term outlook


Brexit is still a source of eurozone uncertainty

Mr Draghi highlights the UK’s forthcoming EU exit deal as a source of uncertainty for the eurozone economy.

“We shouldn’t think that [Brexit] is over” he says, citing trade linkages as “a source and channel of economic consequences”.

Despite the relatively robust economic performance since the June vote, he adds that it is “quite clear that the uncertainty over the length and shape of [the UK] agreement” is already producing economic effects.


Draghi refuses to be drawn on Macron

Another swotting away of questions on French political risk: “we discuss policies not politics”, says Mr Draghi.


Euro reverses course and heads lower

The FT’s Roger Blitz reports:

If Mr Draghi was hoping to turn markets off the idea of tapering any time soon, he looks to have succeeded. The euro has changed direction in the course of the press conference, and is now down 0.4 per cent on the day to around $1.0860, having at one stage been as high as $1.0930.


Risks still tilted to the downside

The final question is what would be Draghi’s headline be from today’s meeting.

The headline is this: the risks facing the eurozone while moving to a more balanced standpoint are still tilted to the downside. Probably should be something shorter, he says.

“You figure it out.”


That’s all for today


What did we learn?

So to summarise Draghi’s comments today: everything is getting better, but it is not quite good enough yet and it could get worse. That means the ECB should not do anything different.

He said the risks are increasingly global and less domestic but was very insistent these risks were still ’tilted to the downside’ and that there was no need to discuss tapering QE yet.


Reaction: ECB ready to ‘finish the job’

Frederik Ducrozet at Pictet Asset Management is quick off the blocks with this reaction to today’s ECB meeting titled “ECB: the courage not to act”.

Our impression is that there is a fairly strong consensus within the GC to “finish the job”. The ECB is in no rush to embark on policy normalisation and rightly so in our view, as long as underlying inflation dynamics remain subdued.

The central bank’s key argument remains that the projected return of inflation to its 2% target still depends on “a very substantial degree of monetary accommodation”. As a result, no hard decision will probably be made until the long-awaited upward adjustment in core inflation becomes visible in the data, as described in Draghi’s four inflation criteria.

First, core inflation needs to move from around 0.9% (as measured by the ECB’s less volatile ‘super core’ gauge) towards the 1.1-1.2% level. Second, it needs to stay there, or rise a little further, for the adjustment to be ‘self-sustained’.


ECB keeps ‘buying time’

Today’s ECB meeting was one for the purists. Carsten Brzeski, chief Germany economist at ING, calls it “superfluous”:

For the time being, the ECB seems willing to simply watch the recovery broadening, without altering its monetary policy. Only if and when the stronger recovery starts to lead to higher prices, the ECB looks willing to act.

In this context, it was interesting to hear Draghi saying that there were tentative signs of upward pressure in early stages of the pricing chain but that the outlook for wage growth remains uncertain.

In short, today’s ECB meeting was clearly not a meeting to remember. It was a rather superfluous meeting to buy time and keep markets in check.

The real action will come in June or July. If by then, political uncertainty in the eurozone has dropped further, the economy has continued its cyclical upswing and inflation has not slowed down significantly, the ECB is likely to give hints at a gentle exit from its ultra-loose monetary policy.

Hints, not action.


That’s a wrap

Here’s a summary of today’s quite jovial ECB meeting which was heavy on laughs but light on detail.

- Draghi refuses to be drawn on French election: “we discuss policies not politics”

- Governing Council “unanimous” on keeping economic outlook unchanged but Draghi admits to internal discussion on the strength of the current recovery

- Draghi digs at critics: hits out at “pretty ironic” criticism of ECB policy from supporters of central bank independence, after Wolfgang Schauble pushes back against low rates policy

- Brexit is still a risk: “shape” of final UK exit deal will produce economic effects in the eurozone, says Draghi, who warns the British question has “not gone away”

Here’s our full story from Claire Jones in Frankfurt.

Thanks for joining us.