The ECB follows the BOE and also sends the currency lower as he states that rates will stay low for a long time: at current levels or even lower. In addition, the euro-area growth risks remain on the downside. Mario Draghi said he sees underlying price pressures in the medium term.
EUR/USD is falling sharply. It reached a low of 1.2882 before climbing back above 1.29 towards the end of the presser. This has been one of the most dovish apperances by Draghi for a long time.
Highlights
- Forward guidance: rates expected to remain low for a long time
- Unprecedented, significant step forward.
- Growth has downside risks
- Decision was unanimous
- 50bp is not lower bound
- Open mind on a negative deposit rate
- EUR/USD tumbles over 100 pips (so far)
Live Blog
- 12:35 Recent confidence indicators are positive signs.
- 12:36 Draghi says interest rates to stay low for an extended period of time.
- 12:37 GMT EUR/USD already at 1.2918.
- 12:38 Reduced demand for labor
- 12:40 Heightened credit risk and ongoing adjustment
- 12:41 Fragmentation needs to decline in order for the situation to improve.
- 12:41 Steps for a banking union require a more speedy approach.
- 12:42 Prices should remain balanced.
- 12:42 ECB notes the EU Council decisions in the areas of youth unemployment and others.
- 12:45 Draghi reiterates that all interest rates to remain low for an extended period of time.
- 12:45 EUR/USD getting closer to 1.29.
- 12:46 Discussed various ways of forward guidance.
- 12:47 The decision was unanimous
- 12:47 EUR/USD already under 1.29.
- 12:49 ECB has guidance role on ABS initiative.
- 12:50 Draghi asked about the “extended period of time” but doesn’t elaborate.
- 12:51 The ECB injected a downward bias in bonds.
- 12:52 The decision was unanimous regarding forward guidance.
- 12:55 Draghi makes it clear that also the deposit rate could drop – EUR/USD already at 1.2890.
- 12:55 Liqduidity will remain ample
- 12:56 An extended period of time is not 6 or 12 months but “extended”
- 12:57 Draghi avoids answering on a Greek haircut
- 12:59 Objective to maintain price stability.
- 13:03 Next communication moves unknown at the moment. EUR/USD stabilizes above 1.29 for now.
- 13:05 We don’t react to others (regarding communication)
- 13:05 Increased volatility justifies forward guidance.
- 15:09 Portugal has made lots of progress.
- 13:13 We have two types of backstops. Example: Spain.
- 13:16 OMT was not designed to replace policy.
- 13:18 Not all governments used the time in a good manner.
- 13:20 Press conference ends.
Background
The ECB left all interest rates unchanged: the main rate is at 0.50% and the deposit rate at 0%. This was widely expected. It’s important to note that the decision comes during low liquidity due to the US holiday.
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