Draghi Press Conference Remarks in Nicosia Sends Euro Near to Cusp of $1.1000

March 5, 2015

After the second of eight scheduled meetings of the ECB Governing Council, held off-sight in Nicosia, a statement was release informing us that

  • The ECB refinancing rate, marginal lending facility rate, and deposit rate were left unchanged at 0.05%, 0.30%, and -0.20%.
  • New staffing GDP and CPI forecasts had been crunched and for the first time include 2017.
  • Quantitative stimulus will commence next Monday at a pace of 60 billion euros per month for at least 20 straight months, or “in any case, be conducted until we see a sustained adjustment in the path of inflation which is consistent with our aim of achieving inflation rates below, but close to, 2% over the medium term.”
  • Since announcing quantitative easing plans (QE), financial market conditions have eased, and money and credit dynamics have begun to firm.
  • Projected growth was revised upward to reflect lower oil prices, a more competitive euro, and recent monetary policy initiatives.
  • Growth risks are skewed to the downside but to a lesser extent than before.  Balance sheet adjustments and slow implementation of structural reforms will dampen the recovery. 
  • Projected inflation was revised down significantly for this year but bumped up slightly for next year.
  • A return to price stability in the medium term remains the ECB’s guiding priority.  In that regard, officials will be particularly watching the pass-through of its measures, the impact of geopolitical developments and what happens to the euro and energy prices.
  • ECB officials will not be complacent now that recovery has begun and insist that governments move swiftly, credibly and effectively in implementing product and labor market reforms, while complying fully with the Stability and Growth Pact that enforces fiscal prudence.

The evolution of ECB staff quarterly forecasts are shown below.

GDP,% 2015 2016 2017
March 2015 1.5% 1.9% 2.1%
Dec 2014 1.0% 1.5%  
Sept 2014 1.6% 1.9%  
June 2014 1.7% 1.8%  
March 2014 1.5% 1.8%  

Note above that officials now project the same 1.5% expansion of real GDP this year that they did in forecasts issued a year ago.  But in between, its been both higher and lower than that rate. 

CPI, % 2015 2016 2017
March 2015 0.0% 1.5% 1.8%
Dec 2014 0.7% 1.3%  
Sept 2014 1.1% 1.4%  
June 2014 1.1% 1.4%  
March 2014 1.3% 1.5%  

Officials concede that inflation may stay negative in the period just ahead but see the trend rising later in 2015 and a return to target by late next year.  The forecasts are annual averages, not end-year indications.

In the Q&A section of the press conference, much of the discussion dwelled on Greece.  Draghi said that Emergency Liquidity Assistance to Greek banks had been raised by half a billion euros today and laid out what the Greek government needs to do to secure other support as it struggles for normalization.

The euro touch a low today so far of $1.1006.  Such was at $1.3020 when rates were cut in early September 2014.

Copyright 2015, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.



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