ECB Statement and Press Conference

December 3, 2015

The Governing Council cut the deposit rate by a smaller-than-anticipated ten basis points to negative 0.30%, while failing to change the 0.50% refinancing rate, the 0.30% marginal lending facility rate or the EUR 60 billion per month size of its monthly asset purchases.  ECB President Draghi instead said the importance of an innovation to reinvest maturing asset holdings through end-2017 at least musn’t be underestimated.  Quantitative stimulus at the same monthly amount will be done until March 2017, rather than September 2016 as originally designed, and 3-month LTROs also are being maintained over the coming two years.  More actions will be undertaken if inflation doesn’t climb as fast as policymakers are expecting. 

New macroeconomic forecasts were released that leave the growth profile largely intact.  The evolution of ECB staff quarterly forecasts is shown below.

GDP,% 2015 2016 2017
Dec 2015 1.5% 1.7% 1.9%
Sept 2015 1.4% 1.7% 1.8%
June 2015 1.5% 1.9% 2.0%
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 in March 2015 and March 2014.  Note, too, that projected CPI inflation in both 2016 and 2017 was sliced for the second straight time. 

CPI, % 2015 2016 2017
Dec 2015 0.1% 1.0% 1.6%
Sept 2015 0.1% 1.1% 1.7%
June 2015 0.3% 1.5% 1.8%
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%  


Draghi’s statement flags “continued downside risks to the inflation outlook and slightly weaker inflation dynamics than previously expected.”  Furthermore, “Our new measures will ensure accommodative financial conditions and further strengthen the substantial easing impact of the measures taken since June 2014, which have had significant positive effects on financing conditions, credit and the real economy. Today’s decisions also reinforce the momentum of the euro area’s economic recovery and strengthen its resilience against recent global economic shocks.”

After a thorough economic and monetary analysis, officials concluded that more monetary stimulus is required.  The focus of ECB policy remains on returning inflation to the target of below but close to 2.0% within the forecast time horizon.  It is again emphasized that while ECB policy is promoting continuing economic recovery, other policies are needed to “to reap the full benefits from our monetary policy measures.”

Based on the adverse reaction of market indicators today, investors do not believe the central bank has done enough.  The next meeting of the Governing Council is set for January 21, 2016.

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



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