ECB President Draghi’s Press Conference

June 3, 2015

The ECB refinancing rate was left at 0.05%, flanked by a negative 0.2% deposit rate and a 0.3% marginal lending rate.  In June and September, key rates were cut by a combined twenty, twenty and forty-five basis points, respective.  Quantitative stimulus at an average pace of EUR 60 billion per month to run through September 2016 commenced in March of this year.

The outlook for future growth is still expected to broaden but with somewhat less momentum because of weaker prospects in other global regions.  Officials were not surprised by the quickness of inflation’s rise from -0.6% in February to +0.3% currently.  Determination is strong to undertake the fully planned 20-month program of quantitative stimulus, which already has “contributed to a broad-based easing in financial conditions, a recovery in inflation expectations and more favourable borrowing conditions for firms and households. The effects of these measures are working their way through to the economy and are contributing to economic growth, a reduction in economic slack, and money and credit expansion,” according to today’s released statement

New macroeconomic forecasts were released that leave the growth and the previous inflation profiles largely intact.  The evolution of ECB staff quarterly forecasts are shown below.

GDP,% 2015 2016 2017
June 2015 1.5% 1.9% 2.0%
March 2015 1.5% 1.9% 2.1%
Dec 2014 1.0% 1.5%  
Sept 2014 1.6% 1.9%  
June 2014 1.7% 1.8%  
March 2014 1.5% 1.8%  

Note above that officials now project the same 1.5% expansion of real GDP this year that they did in forecasts issued fifteen months ago.  But in between, its been both higher and lower than that rate.  Note, too, that CPI inflation was bumped up 0.3 percentage points in 2015 but left the same in the ensuing two years.  The upswing from 0.3% now to 1.5% will occur mostly next year and be extended in 2017 when the forecast coincides with the medium-term target.

CPI, % 2015 2016 2017
June 2015 0.3% 1.5% 1.8%
March 2015 0.0% 1.5% 1.8%
Dec 2014 0.7% 1.3%  
Sept 2014 1.1% 1.4%  
June 2014 1.1% 1.4%  
March 2014 1.3% 1.5%  

Questions to Mr. Draghi were dominated by the Greek debt crisis and on-going negotiations.  Time and again the ECB president said the central bank desires a “strong agreement,” which is one that satisfies a near-impossible set of conditions in the view of many private sector economists.  He was careful not to inject any specific opinion  that could jeopardize highly delicate ongoing talks.  Contingencies exist but were not laid out.

Copyright 2015, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.



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