After overseeing the second LTRO, the ECB is likely to leave policy unchanged and refrain from announcing any policy steps.
With the Greek drama and the second bailout culminating, Draghi will likely want to keep things quiet. Will the reporters get some interesting statement out of the presser? ECB Preview
Rates and Recession
The ECB is widely expected to leave the interest rate at 1% for another month. This level is the lowest ever, and the situation isn’t extraordinary enough to go below this level.
A “mild recession” was already discussed in previous meetings and the updated forecasts by the European Commission aren’t likely to shock the ECB. If Draghi warns about a deep recession, it will be a big surprise and euro-negative, yet the chances are slim.
Headline inflation is still above the 2% target, even if the blame is mostly on oil. The single mandate of the ECB is inflation, and even though Draghi has shown impressing flexibility, a rate cut now is unlikely, especially due to the will to keep quiet.
Press conference: LTRO and Greek Drama
The press conference will likely focus on the results of the second LTRO. The ECB was pleased with the first operation as providing tentative signs of stabilization. Draghi recently said that these signs are stronger.
The rate decision is at 12:45 GMT, and the press conference begins at 13:30. The Greek bond swap expires at 20:00 GMT. The official results of this offer will probably be made known only at the Eurogroup video conference due on Friday.
Draghi will likely be asked about this by the reporters. In his last presser, he offered a loop hole that would allow distributing ECB profits to Greece. This is relevant only after the PSI is successfully completed.
Portugal Coming into the Scene
The ECB swapped its own bonds for new ones that are immune to the Collective Action Clauses. This itself is a good enough reason for triggering the Credit Default Swaps.
His predecessor Jean-Claude Trichet said NO to a default or a credit event. The reporters will likely grill the ECB on the subordination, that can scare private bondholders.
This is especially relevant for Portugal, which wants to return to the markets in 2013. Here are 5 reasons why Portugal will not return to the markets in 2013, and will likely need a second bailout, if not an outright default.
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