Draghi: Downside Risks Have Materialized, But Still Expects Growth
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Draghi: Downside Risks Have Materialized, But Still Expects Growth

The ECB cut its benchmark rate to a historic low of 0.75% as expected. However, the cut of the deposit rate from 0.25% to absolutely nothing, 0%, was a shocker that sent the euro plunging across the board, with EUR/USD erasing the EU Summit gains and EUR/AUD hitting a 23 year low.

The president of the ECB, Mario Draghi, faced the press in the regular press conference. He said the downside risks have materialized, but he still expects growth. Draghi doesn’t fear deflation and says that the ECB still has all the artillery. He even sees the same baseline scenario of growth at “the turn of the year” and is glad to see that there are no outflows from the euro-zone.

EUR/USD continued sliding during the press conference, and it is now at 1.2377 – well below the levels seen after the EU Summit, which Draghi praised.


  • Downside risks have materialized
  • Credit remains weak, demand is weak.
  • Draghi doesn’t fear deflation.
  • “No contamination” between new supervisory role and monetary policy.
  • Irish achievement s should be celebrated.
  • Financial climate a little less tense then a month ago.
  • Decision to cut rates was unanimous.
  • Still expects growth at the turn of the year.
  • No outflows out of the euro-zone.

Live Blog

12:15 US ADP Non-Farm Payrolls exceeded expectations with +176K. A positive for the NFP, but should be taken carefully.

12:22 GMT EUR/USD bounced off 1.24. Presser begins at 12:30 GMT. All times are GMT.

12:25 German Chancellor Angela Merkel added fuel to the fire by saying that Germany made no new commitments at the summit.

12:28 EUR/USD dipped under 1.24 for a short time. You can watch the presser here.

12:30 US weekly jobless claims fell to 374K. Another small positive for the US. Expectations were for around 10K more, similar to last week’s 388K.

12:31 Draghi says that downside risks have materialized.

12:32 Inflation will fall in 2013:  heightened uncertainty weghing on confidence, inflationary pressures dampend further, growth continues to remain weak.

12:33 Weaker than expected growth in euro-area – downside risk.

12:34  Standard and non-standard measures employed.

12:35 EUR/USD pushes under 1.24 once again.

12:35 Heightened risk aversion, pressure on households and more weigh on the economies. Soundness of banks’ balance sheets are highly important.

12:35  M3 2.8% closer to 3% in March reversal of April outflow; subdued loan growth 0.4% in May from 0.8% April (thus deposit rate 0%)

12:36 Draghi welcomes the EU Summit decisions, and details them. He mentions the conditionality and the new role for banking

12:38 Questions begin: how bad is the situation? We still need to see the impact of the LTROs. Credit flows remain weak.

12:39 Transmission mechanism depends on nations. Credit is lead by demand. If demand is weak, you cannot expect strong credit growth.

12:41 EUR/USD falls to 1.2380.

12:43 There was no coordination beyond the normal exchange of views between central banks.

12:44 Q: Is there a deflationary risk? A: Downside risks are materializing and this dampens prices.

12:46 EUR/USD stabilizing just under 1.24. “Some prices are falling” but Draghi dismisses deflation.

12:47 Q: What happens if Italy needs aid? What about a credit crunch? A: The idea that the ECB could channel funds to a specific category of firms is “as wrong as the idea that the ECB should not buy government bonds”. Both ideas are hard to implement.

12:49 We eased collateral rules to help SMEs. It is could for the banks to lend now, as it generates collateral for more lending…

12:51 EUR/USD tops 1.24 once again. “The ECB should be placed in a way to carry out” without risk.

12:52 “No contamination” between monetary policy and supervision. ECB should remain independent.

12:55 “How big is enough”? Regarding the size of the bailout funds.

12:56 The new versions of the bailout funds should be adequate to cope.

12:58 Q:hat about Irish banks? A: Draghi praises Ireland and mentions that it returned to the markets.

13:00 Q: Is there scope to change the mandate? Draghi reiterates the current inflation mandate and doesn’t really answer the question.

13:02 Q: Was the decision unanimous? Answer: yes, on all grounds. Draghi says it adds to the strength of the agreement.

13:04 Q: Is the current situation worse than in 2007-2008? A: Definitely not.

13:05 Still expecting growth towards the end of the year. However, downside risks are materializing.

13:07 EUR/USD just under 1.24, calm after the storm. See the EUR/USD forecast here for more.

13:08 Program still on track in Portugal, says VC Constancio. “Portugal assessed to be in the right direction”.

13:09 Collateral changes according to the different countries. “I’d rather not make names”.

13:10 “You can see where the funding strains are in Europe. EUR/USD slides again to 1.2387.

13:11 If the bank is solvent, the ECB stands ready to help. Still, the collateral should be acceptable.

13:12 The collateral framework will have to be revisited in the future.

13:13 Weak demand is weakening monetary transmission. Investment decisions tradeoffs are now better.

13:14 Q: Deposit rate cut – sowing the seeds of the next bubble? Answer: Economy prevents upward pressure on prices.

13:16 On Liebor, Draghi hopes the ECB would have done better.

13:17  Q: Were additional measures considered today? A: No new non-standard measures discussed, because it is hard to find measures in a highly fragmented  environment.

13:19 No outflows from the euro-area. EUR/USD unimpressed.

13:19 Draghi says that the EU Summit was a great success. We’ll see.

13:20 ECB staff indeed overworked, says Draghi.

13:22 Everything is subject to conditionality

13:25 “I don’t expect banks’ behavior to change in any way”

13:27 “We don’t pre-commit”, regarding negative deposit rates.

13:28 Q:Is the ECB running low on policy options? A: No, not running low on policy options. “We still have all out artillery” in both directions.

13:31 EUR/USD now digs lower to 1.2367.

 13:32 Press conference ended.


The rate decision comes after two easing decisions from the UK and China: Britain increased the QE program by 50 billion pounds as expected and discussed very low growth.

China cut the deposit rate by 0.25%, and the  benchmark lending rate by 31bps at the same time, in a surprising move. The global economy is definitely struggling. Note that EUR/AUD is at a 23 year low.

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.