Search ForexCrunch

Mario Draghi is celebrating the LTROs’ success, but certainly isn’t celebrating other things. He says it’s premature to talk about an exit strategy. And, he actually waits for inflation to fall by its own. The rate was left unchanged at 1% once again.

Nevertheless, the president of the ECB will likely discuss the economic situation, which isn’t too good. Live blog of the press conference.


  • Talk of exit strategy premature in current high employment, low output (GDP).
  • Inflation expectations are balanced.
  • Inflation dropped despite high oil.
  • Has not raised inflation rhetoric.
  • Inflation will stay above 2% in 2012 but will fall below 2% in 2013.
  • LTRO opportunity for structural reforms by governments, orderly deleveraging by banks.
  • “We have not done Quantitative Easing”.
  • EUR/USD is significantly weaker due to the press conference, closes at 1.3128.

Live Updates

12:00 GMT EUR/USD is trading around 1.3150. All times are GMT. The pair dropped lower after a worrying bond auction in Spain. All times are GMT.

12:03 The rate decision is usually held on the first Thursday of the month. It was brought forward due to the long Easter weekend. Also note that two important hints towards the US Non-Farm Payrolls are released today: ADP Non-Farm Payrolls for the private sector and the ISM Non-Manufacturing PMI.

12:13 EUR/USD continues to tick lower before the presser, but still holds above 1.3140. You can see the conference here.

12:15 ADP Non-Farm Payrolls showed a gain of 209K jobs in the private sector during March 2012. This is within early expectations, which stood on a gain of 205K and all in all a healthy rise. It is strengthened by an upwards revision of last month’s number: from +216K to +230K.

12:18 EUR/USD dipped to touch the 1.3135 support line after the release of the ADP NFP, but didn’t breach it so far.

12:30 Just before the presser begins, EUR/USD breaks 1.3135.

12:35 Draghi says that  inflation  is still a risk.

12:37 Balance sheet adjustments to support growth.

12:38 Low rates supporting economies. EUR/USD plunges towards 1.31.

12:39  Economic development is subject to downside risks. This doesn’t help the euro.

12:40 Inflation in the mid term is broadly balanced. Broadly balanced means no need for hikes. Another weight on the euro.

12:41 Note that the ECB website doesn’t show the press conference at the moment, even though it is still going on.

12:42 Inflation will fall back within target (2%) during 2013. Will it happen by itself?

12:43  Funding conditions for banks improved. Important for banks to strengthen balance sheets.

12:44 Website back when refreshing. Questions begin. EUR/USD at 1.3112.

12:45 LTROs prevented a credit crunch. He is taking pride in these operations once again. And, he says that the second LTRO didn’t take its full effect yet.

12:46 Given the present conditions on the price outlook (no core inflation issues) and also on GDP and unemployment, there is still time for an exit strategy. Also very euro bearish, but the pair stabilizes now at 1.3120.

12:48 Draghi: Inflation is now at 2.6%, lower than last time, even though commodities are high. Inflation will stay above 2% during 2012 and will fall afterwards.

12:51 Working on resolving issues with Greek banks.

12:52 Reporter: You sound more concerned about inflation. How much are German wage deals moving the ECB?

12:53: Answer: Not stepping up rhetoric against inflation – more reasons for the euro to fall. Not commenting on German wage deals.

12:55 Structural reforms are necessary to support employment for the long term.

12:56 No sign that banks are addicted to the ECB (regarding the LTROs). LTROs an opportunity for governments to make structural reforms, for banks to deleverage in an orderly fashion. This is not capital but liquidity. It is a good time for banks to raise capital now.

12:59 Each National Central Bank would take the risk and the bonds. Each NCB is free to accept or reject the risk on the bonds. All in all, this is peanuts: it includes only countries which are in a program (Greece, Portugal and Ireland) and bonds which are under eligibility rules.

13:01 EUR/USD stable on low ground at 1.3115. Draghi fully confident that Irish people will approve the fiscal compact in the referendum.

13:02 ECB taking note of restructuring intentions of the Irish government regarding the banks.

13:06 Some Greek banks will need restructuring. It will happen in an orderly fashion. “No surprises there”. VP Constancio is talking now.

13:09 Draghi: “Markets are expecting reforms”.

13:11 Question: Did the NCBs swap Greek bonds? Draghi relates to the ECB’s swap…

13:15 Will the ECB return to a classical monetary policy? Was there a discussion about a rate cut? A: No discussion about rate changes.

13:17 LTRO stabilized markets. Therefore we slowed down the program. Now assessing the program.

13:18 Classical monetary policy? Hard to answer during this exceptional time. “We have not done Quantitative Easing”.

13:20 We are assessing the LTROs and then we will decided on new policy. No rush…

13:21 Rebalancing should be done without inflating the stronger countries (i.e. Germany). “We don’t want to weaken the stronger countries”.

13:22 Forex intervention should be multilateral.

13:23 Growth can come from foreign demand (such as emerging markets) and from low interest rates. Real rates are negative now.

13:24 Youth unemployment is highest where there is a dual labor market: one market with too much protection and one for young people with zero protection.

13:25  “I believe in solidarity and inclusion, but the current social model needs to be revisited”.

13:26  EUR/USD is now at 1.3125. It fell as low as 1.3109.

13:27 Progress has been extraordinary with problematic countries.

13:28 It takes time between central bank money is created until it reaches the public. Banks might not lend if they don’t have money – “we took care of that”. But capital, “we cannot take care of that”. We can take care of demand only through short term interest rates”.

13:30 Was the decision unanimous? Answer: Yes. When will the second LTRO be assessed? We cannot answer…

13:33 Last question: What inflation rate is healthy? Answer: M3 is below the historical average. We look at the “pass through”. Draghi explains that they check if oil prices pass through to wages for example. Currently there is no “pass through”. Trichet called it “second round effects”.

13:34 Press conference ends. EUR/USD closes at 1.3128.


Stubborn inflation prevented further rate cuts, especially as prices in Germany continue rising alongside German criticism of loose policy. On the other hand, the recession threatens to be more than mild, and more than short lived.

The unemployment rate ticked up once again to 10.8% and joined other depressing indicators. The markets would probably like another LTRO to keep sovereign bond yields more contained. Even after 1 trillion euros of cheap loans, bond vigilantes are still to be found, and they’re now moving on Spain.

For technical levels, see the euro to dollar forecast.