ECB Press Conference

February 9, 2012

The ECB Governing Council left its three key interest rates including a 1.0% refinancing rate unchanged as most analysts were expecting.  The rates were cut by 25 basis points each in November and December but not changed in January.  A statement was released today that

  • Declared that hard and survey evidence since the January meeting confirm the prior assessment of a "tentative stabilization" of activity at "a low level" with "high uncertainty" and overall "downside risk."
  • Predicted a very gradual economic recovery later in 2012.
  • Reiterated the prior inflation outlook of above-target CPI for several more months but a decline to less than 2.0% later.
  • Called monetary expansion "subdued" and expected inflation "anchored."
  • Announced an extension of the collateral framework, details of which to be reported later.
  • Drew a distinction between monetary policy, which concerns the pricing of assets, and non-conventional measures which address improper transmission of monetary policy and are "temporary by nature."

At the subsequent press conference, ECB President Draghi reported that he’d just been told that Greek political parties had reached agreement on austerity and other reforms, which he called a "major political event" and a first timid step toward a fiscal union, which mustn’t be mistaken for a fiscal transfer union.  A Greek PSI deal is also reportedly near.  Draghi said Greece is "unique for everything" and that Ireland’s government deserves praise for its fiscal reforms.  He refused to modify the ECB’s steadfast commitment to not violating the rule that prohibits it from monetary financing any governments.

A number of questions to elicit details about the wider collateral rules and how much additional liquidity might result failed to draw out specific answers.  The Eurogroup meets tonight, and that gathering will in part affect those answers. Draghi conceded that the decision on collateral had not been reached unanimously but enjoyed strong support.  The extended collateral involves greater risk to the central bank, but incremental risk is deemed acceptable and will be managed properly. 

Draghi would not give a personal forecast of the likely size of this month’s second three-year LTRO but mentioned that private analysts anticipate a magnitude along the considerable lines of December’s tender.  He underscored that it is the intent of ECB officials that no stigma be associated with a bank’s participation in these tenders.

Draghi expressed considerable concern about tighter credit conditions, a situation that will be watched very closely.  Credit to the private sector in December was just 0.4% greater than a year earlier, down from a 1.0% rise in the year to November.  All sectors of credit are getting squeezed.

Draghi in response to a question admitted that ECB staff are less pessimistic about regional growth later this year than is the IMF.  To a separate question, he indirectly criticized Japan’s unilateral intervention last October 31-November 4 by saying the ECB only endorses intervention that is conducted jointly by several countries.

Copyright 2012, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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