ECB Review: No Big Surprises

February 7, 2013

ECB interest rates — a 0.75% refinancing rate flanked by a zero deposit rate and a 1.50% marginal lending rate — were left unchanged as expected.  They’ve been at these levels since last July’s easing. 

Remarks on growth and inflation were consistent with what has been said in the recent past including at January’s meeting of the Governing Council.

  • GDP contracted in the past three quarters. Weakness continued in early 2013, but a gradual recovery is projected “to start later in 2013” in response to the accommodative monetary policy, improved financial market confidence, reduced financial market fragmentation, and strengthening global demand.
  • CPI inflation is expected to fall further below 2% in the months ahead and to stay contained over the forecast period.  Expected inflation is contained.
  • The bias of growth risks is skewed to the downside.  That on inflation is evenly balanced.
  • Money growth is subdued.  credit demand is weak.  Monetary analysis points to medium-term price stability.

Draghi downplayed concern about the recent appreciation of the euro.  It’s a sign, he argued, of returning confidence in the common currency.  He observed too that the real and nominal values of the currency are close to their long-term average levels.  He reiterated that non-existence of a euro target but said that if exchange rate developments impact the outlook for growth and inflation, policy will take such information into account.

Draghi also downplayed the significance of large early repayments of long-term LTROs (28.7% of the first of two three-year tenders so far) and a recent upward drift of EONIA rates.  He said policy remains accommodative and in full allotment mode.

Draghi was peppered with numerous questions on the Irish government’s action on getting a better bank debt deal.  He went to great lengths to say no more than the the ECB had taken note of the development.

Copyright 2013, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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