According to Deutsche Bank analysts, for the ECB, the big takeaways were 1) to signal that deposit tiering is under consideration, 2) to open the possibility of a rate cut, 3) a decision framework for the TLTRO3s, and 4) the assertion that the inflation target is symmetrical and not a ceiling.
Key Quotes
“On the first, Draghi confirmed that the ECB is discussing – and more importantly considering – whether the side-effects of negative rates need mitigating. There was no talk of a policy response yet which is in line with what our economists expected, and Draghi sounded generally non-committal during the press conference, however it’s clear now that it’s becoming an active policy discussion.”
“Second, some form of tiering or mitigation technique would in theory make more-negative rates less painful to the financial sector, and therefore may make them more attractive as a policy option. Draghi emphasized that the ECB will use its entire toolkit as appropriate.”
“Third, TLTRO 3 pricing details are to “be communicated at one of the other forthcoming meetings.” The decision will be driven by the bank-based policy transmission mechanism as well as by the economic outlook. Draghi reiterated the party line on growth, which is risks to the Euro Area outlook are still “tilted to the downside”. The risk of recession for the Euro Area remains low however while inflation is expected to decline over the coming months.”
“Fourth, Draghi reiterated that the inflation target is symmetrical and that the ECB would tolerate overshoots. This isn’t new policy, but it does emphasize how the ECB is determined to keep policy accommodative to ensure they don’t repeat the over-tightening mistakes of 2011.”
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