ECB September Press Conference Unveils Modifications

September 8, 2011

The Governing Council voted unanimously not to change its three key rates, a 1.5% refinancing rate flanked by a 0.75% deposit rate and a 2.25% marginal lending rate.  New and lower staff macroeconomic projections were released.  The table below compares such to earlier quarterly forecasts by the staff.

  GDP 2011 GDP 2012 CPI 2011 CPI 2012
09/11 +1.4/1.8% +0.4/2.2% +2.5/2.7% +1.2/2.2%
06/11 +1.5/2.3% +0.6/2.8% +2.5/2.7% +1.1/2.3%
03/11 +1.3/2.1% +0.8/2.8% +2.0/2.6% +1.0/2.4%
12/10 +0.7/2.1% +0.6/2.8% +1.3/2.3% +0.7/2.3%
09/10 +0.5/2.3%   +1.2/2.2%  
06/10 +0.2/2.2%   +0.2/2.2%  
03/10 +0.5/2.5%   +0.9/2.1%  
12/09 +0.2/2.2%   +0.8/2.0%  


Separately, the Governing Council identified “intensified downside growth risks” and modified the balance of risks on

  • Growth from being “balanced” previously to now being skewed to the downside.
  • Prices from being previously “to the upside” to being now “balanced.”

Some financing conditions within the region have “tightened,” but officials consider the policy stance to be accommodative and rate levels to be low.  The ECB also promised to continue to provide unlimited liquidity via non-standard measures.  While money is expanding moderately, the level of liquidity is considered ample. 

President Trichet called this the worst crisis since the Second World War.  He fiercely defended the ECB record in delivering price stability since 1999 and the central bank’s independence, and he acknowledged that the ECB takes its mandated responsibilities very seriously and has had to make very difficult decisions in this challenging environment.

Trichet drew a distinction between unilateral intervention by the BOJ and the Swiss National Bank.  ECB officials are not pleased about Japan’s actions but accept the SNB’s effort to cap franc strength against the euro.

Trichet’s remarks about Irish fiscal policy adjustments were more positive than his comments on Greek and Italian fiscal decisions.

The ECB is not predicting a recession.  The forecast calls for moderate expansion.  But the changes made today effectively put a halt for now to rate increases and put markets on alert for a possible ease if actual growth and inflation undershoot the central bank’s expectation.

Copyright 2011, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.



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