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Draghi worries about money markets, 2014 GDP forecast lowered

The ECB left the interest rates unchanged, and now President Mario Draghi faced the press. Draghi looked at the recovery with a lot of caution, calling it “green”. He also expressed worries about money markets. The ECB staff projections point to lower growth in 2014.  

All in all, his caution sent the euro down. Here is the live blog of the event.


  • Forward guidance maintained.
  • Risks remain to the downside.
  • GDP forecasts: -0.4% for 2013, +1% for 2014. 2014 was downgraded.
  • Worried about developments in money markets.
  • Recovery “too green” – some wanted to talk about rate cuts
  • EUR/USD slides

Live Blog

  • 12:20 GMT. All times are GMT. Press conference begins at 12:30.
  • 12:20 You can see it here.
  • 12:20 EUR/USD  stabilized above 1.32 before the event.
  • 12:21 US ADP Non-Farm Payrolls came in within expectations, at 176K. Perhaps some had expected a better result, so the dollar is somewhat lower, but this is still pointing to QE tapering.
  • 12:23 The US will also release jobless claims at 12:30.
  • 12:25 Usually Draghi uses the words “downside risks” at the beginning of the press conference, and the euro tends to be sensitive to these words and make temporary falls.
  • 12:26 Germany holds elections on September 22nd, and the ECB might want to avoid anything big – not to be seen as influencing.
  • 12:30 US jobless claims fall to 323K – good news.
  • 12:30 Press conference begins.
  • 12:31 Based on the analysis, no change in policy. Underlying price pressure to remain subdued. Credit dynamic remain subdued. Inflation expectation anchored.
  • 12:32 Euro-zone back to growth and optimism for the future. Monetary policy remains accommodative as long as necessary. Price stability watched.
  • 12:32 Forward guidance continues. Key interest rates to remain at present or lower levels for an extended period of time. Subdued outlook for inflation extended into the medium, subdued monetary and economic dynamics.
  • 12:33 EUR/USD slides below 1.32 on the repeat of forward guidance.
  • 12:33 Particularly attentive to money market conditions. New LTRO considered?
  • 12:34 Output is expected to remain at low pace.
  • 12:35 Euro-zone should benefit from rise in external demand. Improvement in financial markets are gradually working their way to the real economy.
  • 12:36 Unemployment remains high.
  • 12:37 GDP declining at 0.4% in 2013 and increasing by 1% in 2014. Compared with the previous projections: the projection for 2013 has been revised upwards by 0.2%. For 2014, there has been a downgrade of 0.1%.
  • 12:37 Risks are on the downside.
  • 12:38 Inflation has been revised upwards for 2013, while the projection for 2014 remains unchanged. Risks for inflation are broadly balanced. Upside risks from commodity prices.
  • +12:40 EUR/USD falls below 1.3180 as the outlook remains subdued.
  • 12:41 Funding conditions of banks have improved since the summer of 2012.
  • 12:42 The economic analysis shows that prices are stable, and so do the cross checks. In order to help growth, more reforms are needed. With fiscal policies, governments should not unravel adjustments. Growth friendly measures are needed.
  • 12:43 Economic policies should increase competitiveness.
  • 12:44 Questions begin
  • 12:45 About excess liquidity, it is receding thanks to less fragmentation.
  • 12:46 EUR/USD bottomed out at 1.3162 so far.
  • 12:47 Prepared to take action as needed.
  • 12:48 Several governors see the recovery as “too green”. “Too green” to exclude this discussion about lower rates.
  • 12:50 Interest rates move due to various reasons, including an improvement in the economy. Forward guidance meant to reduce the volatility.
  • 12:51 We want to make sure inflation is contained.
  • 12:52 Rate cut not excluded for a few people.
  • 12:53 Question about the Netherlands. The Netherlands is suffering from a recession, due to declining real estate prices which weighs on domestic demand.
  • 12:54 Pace of Dutch contraction slowing, and gives hope.
  • 12:56 EUR/USD continuing to fall on the echoes of the previous words – 1.3135 is the new low.
  • 12:57 Positive news on SSM expected in coming days.
  • 12:58 A first full communication by mid-October.
  • 12:59 EUR/USD stabilizes above 1.3150.
  • 13:00 It’s still work in progress.
  • 13:01 Follow up on banking union.
  • 13:02 Question about a third bailout for Greece:
  • 13:02 The view is that the supervisor makes the assessment on the banks. He then hands the assessment to the resolution authority – currently the governments.
  • 13:03 This is how supervisors work everywhere.
  • 13:04 On Greece: the current program expires at end 2014, and this leaves time for the Eurogroup to extend and assess. It’s quite straightforward that if the program needs extension, more conditions will apply.
  • 13:05 Program implementation remains on track. Challenges remains in the financial sector. A decision will be taken in due time. Ireland is leading the way in adjustment programs.
  • 13:06 Ireland: it’s up to the Eurogroup to decide.
  • 13:07 We cannot do monetary financing.
  • 13:07 EUR/USD falls to a new low of 1.3128.
  • 13:08 Perhaps low rates hurt banks?
  • 13:09 Our mandate is for price stability, for the whole euro-area.
  • 13:09 We see no inflation in Germany.
  • 13:10 This relation between our rates and the bunds is not “one relation”. There is another fact keeping rates low in northern countries: safe haven flows. Rates have been artificially low due to fragmentation.
  • 13:11 What about meeting minutes?
  • 13:11 Often, elections have an impact on the economy. Regarding communications, work is still going on regarding this. If it’s well done, it could give more light and transparency. Important to acknowledge that our institutional setup: 17 countries.
  • 13:13 The executive board will present a program in the fall.
  • 13:14 What about the Spanish bank bailout? It is fully on track: bank recapitalization, non-performing assets moved to SAREB, some bank reduced their dependence. Spanish banks repaid a substantive amount. Very few issues remain.
  • 13:14 Markets have become sensitive to Syria.
  • 13:15 We are alert to the Syrian situation and the economic outcomes. When we look at the nature of the beginning of the recovery.
  • 13:17 Not enthusiastic about the recovery. We haven’t discussed coordinated action.
  • 13:19 What about more details about forward guidance?
  • 13:20 The FG contains an assessment about the situation and an assessment about the central bank’s response. It’s rather an explanation of our reaction mechanism.
  • 13:21 FG is quantitative and qualitative.
  • 13:22 EUR/USD continues recovering and climbs back to 1.3160.
  • 13:23 Looking at the medium term outlook for inflation, we wanted to make clear we had a downward bias for interest rates. We never said it before, and just saying it is powerful.
  • 13:25 SSM: If the supervisor sees that the bank is not viable, it would alert the government. The resolution authority will decide what to do.
  • 13:26 OMT accompanied with conditionality.
  • 13:27 A realistic target + unlimited amount of means + conditions made the OMT very effective.
  • 13:28 Conditionality is an important ingredient.
  • 13:29 EUR/USD now stabilizing above 1.3160.
  • 13:30 Press conference ends


The euro-zone returned to growth in Q2, but this growth is uneven: strong in Germany and France and quite weak or non-existent elsewhere. But, there is hope for more moderate growth and also recovery in Spain: PMIs have turned positive.

On the other hand, Greece will almost certainly require more funds, and this time it could be in the form of euro-zone governments taking a loss. And, with lower inflation, Germany could allow for more monetary stimulus.

Further reading: EUR/USD – trading the US Non-Farm Payrolls.

Yohay Elam

Yohay Elam

Yohay Elam: Founder, Writer and Editor I have been into forex trading for over 5 years, and I share the experience that I have and the knowledge that I've accumulated. After taking a short course about forex. Like many forex traders, I've earned a significant share of my knowledge the hard way. Macroeconomics, the impact of news on the ever-moving currency markets and trading psychology have always fascinated me. Before founding Forex Crunch, I've worked as a programmer in various hi-tech companies. I have a B. Sc. in Computer Science from Ben Gurion University. Given this background, forex software has a relatively bigger share in the posts.