ECB Statement and Press Conference

October 2, 2014

ECB interest rates were left at their current levels after having been cut by 10 basis points in August.  The refinancing rate of 0.05% is flanked by a deposit rate of -0.2% and a marginal lending facility rate of 0.3%.

Key operational details of the asset-backed securities purchase program and the third covered bond purchase program were hammered out.  Covered bond purchases will begin in the second half of this month.

The statement speaks of weakening growth momentum and the “risks of too prolonged a period of low inflation,” and reaffirms unanimity on the Governing Council to use other unconventional monetary instruments within its mandate in order to return inflation toward the medium target before the aforementioned risks untether medium-term price expectations.

Signals gleaned from monetary analysis support the appropriateness of stimulus taken thus far including actions introduced in June and September.

Regarding the euro, Draghi said it is not a target per se of the central bank but that its decline is understandable, reflecting different business cycles in Europe from other major regions of the world and from resulting and necessary divergent trends in monetary policy paths.

Draghi admits that developments in Europe have not gone well lately but said it will take some time for the central bank’s actions to elicit their desired effect.

The ECB President stressed that the single mandate of the central bank is achieving its inflation mandate.  On that criteria alone, not intermediate goals such as raising the central bank balance sheet to this level or that, should the ECB’s effort be judged.

Unfortunately, the ECB is but one player in a policy effort that is shared by other players.  “Other policy areas need to contribute decisively,” especially in the area of structural reform and fiscal policy.  Particular stress going forward needs to go into implementation of recommended actions.

Copyright 2014, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.



Comments are closed.