ECB Press Conference

April 15, 2015

The Governing Council statement made no new policy initiatives, proclaimed the focus now to be on full implementation of the considerable measures taken in recent months and defended those actions as appropriate but in need of supportive fiscal policies and structural reforms from member governments. 

President Draghi’s press conference may be most remembered for the protester attack while the president was reading his introductory statement.  The protester was a blond woman, who jumped on the front table, scattered Draghi’s papers, and was heard to call the ECB a dictatorship as she was escorted away.  Some folks, like U.S. presidential candidate Rand Paul just don’t trust the institution of central banking or any authority figure for that matter unless they personally take ownership of such power.  When the press conference ended, the voice of most people was heard through the applause of others attending the event.

Substantively, it was notable for a more upbeat tone from him, something that’s been in rare supply.  He underlined improvements that already have been reaped from quantitative easing, which began only a month ago at a pace of 60 billion euros of asset purchases per month.  The ECB considers quite a multitude of measures of expected inflation, the bulk of which are now trending up.  Real interest rates have have fallen as a result of rising expected inflation.  The nominal central bank rates are a 0.05% refinancing rate, flanked by a negative 0.20% deposit rate and a 0.30% marginal lending facility rate. 

There were many questions about Greece.  Draghi indicated that the issue of a further haircut on Greek debt was mentioned but not discussed.  My sense from the Q&A pertaining to Greece and other developments regarding this EMU member and its debt compliance is that Grexit is become a more acceptable prospect by the other economies.  Fears of contagion should Greece leave the EMU or default on its debt have lessoned.  Greece was not an original member and should not have been allowed to join based on its history.

Draghi indicated a lack of concern about a future problem of scare supply potentially impeding quantitative easing in the future.  He doesn’t anticipate a problem developing, but even if one does surface, there are ample ways to handle such.  Likewise, Draghi is not as yet worried that its policy is promoting an asset bubble.

He reiterated that the euro’s exchange rate is not a policy target.   Recent depreciation is the result of divergent monetary polcy cycles.  Moreover, the near-term implication for Ezone inflation is not so apparent.  Draghi said that the incipient effect of very recent euro depreciation is being mitigated by the lagged impact of previous euro appreciation.  The passthrough of changes in exchange rates to inflation is a complex process.

Draghi asserted that the eurozone’s growth risks have become more balanced.

The key passage defining monetary policy appears in the first large paragraph of the statement.

Purchases are intended to run until the end of September 2016 and, in any case, until we see a sustained adjustment in the path of inflation that is consistent with our aim of achieving inflation rates below, but close to, 2% over the medium term. When carrying out its assessment, the Governing Council will follow its monetary policy strategy and concentrate on trends in inflation, looking through unexpected outcomes in measured inflation in either direction if judged to be transient and to have no implication for the medium-term outlook for price stability.

In subsequent Q&A, Draghi said the above remarks do not constitute a change in the ECB’s policy reaction function.  This is as it always has been, but in light of the newness of quantitative easing and its non-traditional use as a policy tool, the passage was placed in the statement to increase market understanding of the program.

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



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