ECB Review

March 8, 2012

The ECB delivered no surprises.  Interest rates were left unchanged.  Projected growth in 2012 and 2013 was revised downward, while projected inflation especially in 2012 was revised upward mainly to take account of higher energy prices and indirect taxation.  Risks to the growth forecast are skewed to the downside, and those to prices are large but roughly balanced.  A very, very gradual recovery will spring from a greatly improved risk environment, a recovery of foreign demand, and structural reforms.  Expected inflation is well anchored.  Both the economic and monetary analysis point to price stability in the medium term along lines of the ECB’s definition of price stability.

The macroeconomic forecasts allow for the possibility of no positive economic growth before 2014, yet a chance that inflation will remain above the ECB’s target in both of those years.

  GDP 2011 GDP 2012 GDP 2013 CPI 2011 CPI 2012 CPI 2013
03/12   -0.5%/+0.3% 0.0%/2.2%   +2.1%/2.7% +0.9%/2.3%
12/11 +1.5/1.7% -0.4/+1.0% +0.3/2.3% +2.6/2.8% +1.5/2.5% +0.8/2.2%
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%    


In Q&A, Trichet gave not hint that a third 3-year LTRO is contemplated.  He called the two LTROs very successful.  He noted that a change in interest rates was not discussed today.  He went of of his way to refute the methodology of a Wall Street Journal article that concluded that the rise of the ECB balance sheet poses greater risk than its Federal Reserve counterpart.  Many questions addressed the perception of tensions between the ECB and the Bundesbank, and Draghi denied that such is so or that the perception has a basis in truth.  He applauded the Irish government’s effort and performance in pushing for reforms.  He defended ECB transparency, and he declined to comment on how the Greek PSI is unfolding.  There’s been no discussion of tightening of collateral rules; in fact, such could be loosened further, said Draghi.

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



Comments are closed.