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After the ECB left all the rates unchanged, president Mario Draghi faced the press and explained the economic situation, presented forecasts and discussed the negative deposit rate. He was relatively calm and optimistic, and the euro is higher.

Here is the live blog of the event.

Highlights

  • Statement contains no big surprises – EUR/USD higher
  • Budget exceptions should remain exceptional – no change in austerity policy.
  • 2013 growth downgraded -to 0.6%, 2014 at 1.1%
  • Inflation 1.4% in 2013, 1.3% in 2014.
  • Unemployment cyclical, less structural.
  • No deflation is in sight.
  • OMT most successful monetary policy action
  • Negative deposit rate: technically ready, but we don’t see a need to use it now. EUR/USD jumps

Live Blog

  • 12:09 GMT: Press conference begins at 12:30, all times are GMT.
  • 12:10 The ECB will also present
  • 12:10 You can follow the presser live here.
  • 12:10 Note that the US will publish weekly jobless claims at the same time, 12:30. A figure of 345K is expected.
  • 12:11 EUR-USD at 1.3114, not much changed after the rate decision.
  • 12:13 Drgahi will probably be asked about the treatment of Greece following the revelation of the IMF report.
  • 12:16 Draghi had a tendency to zig-zag in his mood, swinging from the negative “downside risks” to optimism about the second half of 2013. This could happen again.
  • 12:18 The rising price of the euro could also trigger some comments about this.
  • 12:19 Resistance appears at 1.3160 and 1.32. 1.30 provides support, followed by 1.3050.
  • 13:23 EUR/USD trading quite limited before Draghi opens his mouth. We could see some volatility immediately afterwards.
  • 12:27 Jobless claims all important for the QE tapering question.
  • 12:29 Beginning soon
  • 12:30 US jobless claims: 346K – a drop of 11K from a revised 357K, and within expectations.
  • 12:30 Press conference begins
  • 12:31 Draghi posing for the camera and begins
  • 12:32 Eurogroup president also attended.
  • 12:32 Rates unchanged, information confirmed the interest cut in May. Price pressure subdued. Monetary and credit dynamics subdued
  • 12:33 Improvement from low levels in recent survey. Improvement in finacial markets from mid 2012. Recovery later in the year.
  • 12:33 Monetary policy will be loose. We will monitor very closely all data.
  • 12:34 Draghi reads out the drop in GDP – 6 consecutive quarters of decline.
  • 12:35 Recovery in 2014 through better global demand.
  • 12:36 Projections: GDP declining by 0.6% in 2013, increasing in 2014. ECB projections revised downwards. For 2014, there was an upgrade. Downside risks.
  • 12:37 Inflation 1.4% in May. Rebound in services prices and rise in food prices.
  • 12:37 EUR/USD rises to 1.3122 after sliding earlier.
  • 12:38 Inflation to remain under 2% in 2013-2014. 2013 revised downwards, 2014 unchanged.
  • 12:39 Downside and upside risks remain unchanged from previous months. M3 has risen due to a base effect and special factor.
  • 12:40 EUR/USD 1.3130
  • 12:41 Improvement has seen since the last summer, seen in repayments in LTROs, banking union will help.
  • 12:42 Price stability to remain according to all signs. Fiscal consolidation welcomed by ECB. Essential that euro-zone governments do not unravel. ECB doesn’t want too many exceptions to budget goals.
  • 12:43 More reforms are needed, especially in competitiveness.
  • 12:44 Questions begin
  • 12:45 Have you scaled down your ambitions?
  • 12:45 We had an “ample discussion” about various measures. We will continue this discussion.
  • 12:46 Wec considred negative rates, technically ready, EUR/USD erases some falls.  
  • 12:47 But, we see no need to use them now, EUR/USD rises to 1.3144.
  • 12:48 Monitoring very closely
  • 12:52 Unemployment: not only cyclical
  • 12:52 Structural issues blocking in some countries – on the shoulders of the young – reason for youth unemployment
  • 12:54 Fixed rate full allotment at least until July 2014.
  • 12:55 Confident that single supervision will come together with single resolution.
  • 12:56 Consensus about decision. It’s good!
  • 12:59 Rumor that the ECB would use ABS for Italian companies. Draghi says it is impossible.
  • 13:01 Question capital controls and OMT
  • 13:01 Captial controls not ECB’s decision. Capital controls distort the markets. The sooner they go, the better.
  • 13:03 On OMT: The most successive policy measure taken in recent times. Draghi pats himself on the back.
  • 13:04 Target2 balanced are back to levels seen in 2011. Cost of capital is much lower. Better for German savers.
  • 13:05 “One can only be satisfied by the operation”. Draghi also mentions rises in US stock markets.
  • 13:06  “Don’t get too optimistic by current market conditions” – message to countries.
  • 13:07  EUR/USD now sliding from the highs.
  • 13:09 Asumussen is more suitable. ECB received an invitation as an institution, regarding German constitutional court.
  • 13:10 LTRO repayments already at 16% of net injections.
  • 13:11 Draghi takes pride in the fact that the ECB is shrining its balance sheet.
  • 13:12 Draghi seems very happy today, and the euro is happy with it.
  • 13:13 Lower price of oil is also a factor. Lower inflation increases purchase power.
  • 13:15 We have done a lot in increasing the net rate of return. Funding rates have gone down.
  • 13:17 Construction in Spain needed to be downsized
  • 13:17 Stress tests without a backstops – it was a mistake.
  • 13:19 Banks have raised capital, have deleveraged a lot. Before we use a backstop, there are other things banks can do.
  • 13:20 Have fewer members asked for monetary easing?
  • 13:21 No discussion cutting the rates, but only if the situation has changed since last time.
  • 13:22 Draghi repeats that the ECB is ready for negative rates and ready to act. EUR/USD doesn’t like it and drops under 1.3140.
  • 13:24 The drop is partially erased.
  • 13:24 “Increase peer pressure” on the banks.
  • 13:25 Our monetary policy is completely independent.
  • 13:26 On deflation, the predictions are lower, but mostly due to the price of oil.
  • 13:27 Draghi doesn’t see deflation by its full definition. Falling prices are restricted to several types of goods.
  • 13:28 Shale gas in the US mentioned.
  • 13:29 Price bumps in the months ahead. The important thing is to look through volatility and see inflation expectations.
  • 13:30 There is real adjustment taking place.
  • 13:30 We see no deflation
  • 13:31 ECB isn’t blamed in the IMF report. We are not to blame.
  • 13:31 Greece has achieved a lot. Haven’t read IMF paper.
  • 13:32 We can’t forget that 4-5 years ago, the climate was much much worse: fear of contagion, where fragmentation began.
  • 13:33 Question from Spain: 27% unemployment. Can’t the ECB do more?
  • 13:34 Answer: Fiscal consolidation cannot be avoided. There are ways to make fiscal consolidation more growth friendly.
  • 13:35 Raising taxes is not growth friendly, and taxes here are very high.
  • 13:36 These countries should change and become more competitive.
  • 13:37 The process is very painful.
  • 13:38 Press conference ends

Background

The ECB cut the main lending rate by 0.25% to 0.50% in May, but left the deposit rate unchanged at 0%. In the press conference, Draghi showed a lot of openness to preparation for setting a negative deposit rate, and this sent the euro tumbling.

While the ECB didn’t cut the deposit rate now, this will be a main topic. A negative rate discourages banks from depositing money with the central bank, and potentially encourages them to lend money to the real economy, or move money out of the zone. A negative rate is big thing. However, more talk and no action could be seen as “crying wolf”.

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