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After cutting the lending rate to a new historic low of 0.50%, Mario Draghi faced the press in the post-decision press conference. While he didn’t present any SME program, Draghi leaves the door open for further rate cuts. Towards the end of the presser, Draghi made a very thick hint about a negative deposit rate, and sent the euro crashing.

Live blog of the event.

More:  Are negative interest rates really possible? Yes they are  

Highlights

  • Economic risks remain ‘on the downside’
  • No SME program was presented.
  • Inflation risks are broadly balanced.
  • Stand ready to act if needed
  • There was a very strong pervading consensus towards an interest rate cut, within that consensus towards 0.25% cut.
  • ECB has an open mind on negative deposit rate: EUR/USD crashes.
  • Full analysis of the hint and crash here.

Live Blog

  • 12:20 GMT. Press conference begins at 12:30. All times are GMT.
  • 12:29 EUR/USD cooling to around 1.3180.
  • 12:32 Press conference begins, EUR/USD rises to 1.32.
  • 12:35 ECB will remain accomodative.
  • 12:37 Draghi: we are closely monitoring money mrkt conditions, we decided to continued to extend full allotment of liquidity to 8 July 2014.
  • 12:38 Economic weakness extended into the spring.
  • 12:40 ECB consulting with other European institutions on helping small businesses, but actually the ECB is not presenting a new plan.
  • 12:42 Labor conditions remain weak, short indicators signal weak activity, second half recovery still expected.
  • 12:43 Economic risks rmain on the downside. EUR/USD lower.
  • 12:45  Inflation risks are broadly balanced.
  • 12:47 In the meantime, US jobless claims came out better than expected: only 324K.
  • 12:48  recent data confirm that the underlying pace of monetary expansion continues to be subdued
  • 12:49  we will certainly look at all incoming data and stand ready to act if needed. Dovish hint?
  • 12:50  fragmentation of eurozone credit markets must decline further, progress has been made in improving funding situation of banks.
  • 12:52  Draghi: there cannot be fears of lack of funding as an excuse for not lending.EUR/USD falling to 1.3160.
  • 12:53    we believe restriction of the rate corridor will reduce volatility of Eonia, will help all kinds of banks (under ELA as well).
  • 12:54 We believe the combination of measures will be effective.
  • 12:55  Don’t underestimate full allotment through July 2014
  • 12:57  decrease in target 2 balances is the best sign that there is a gradual improvement in sentiment.
  • 12:57  Draghi: austerity vs growth, its an interesting debate
  • 12:59  second stage of crisis, have self fulfilling expectations of disruptive scenarios taking momentum, got rid of this thru OMT.
  • 13:00  2nd fiscal consolidation is contractionary in short & medium term so need to mitigate this, don’t do it by raising taxes.
  • 13:02  proceed with structural reforms, many of the problems in labour mrkt, tax area have nothing to do with monetary policy
  • 13:03  there was a very strong pervading consensus towards an interest rate cut, within that consensus towards 0.25% cut. EUR/USD lower.
  • 13:06  ECB can’t supplant governments for their lack of structural reforms, ECB can’t clean bank balance sheets. EUR/USD now back up to 1.3190.
  • 13:09 need to find a way to package these loans so that they can be priced, other institutions more suited to this, i.e. EIB & Commission. EUR/USD getting closer to 1.32.
  • 13:11 ECB independence is dear to all, especially German citizens.
  • 13:12  Draghi says ECB is technically ready to cut deposit rates
  • 13:14  ECB has an open mind on negative deposit rate. EUR/USD crashes.
  • 13:17  There are possible consequences to deposit rate cut but we are prepared to act to mitigate these. EUR/USD at 1.3080.
  • 13:20  let’s not forget that the weakness is spreading to countries where the problem of transmission was not present.
  • 13:22  the trade off to more time should not be compromise to ultimate objectives set by EU.
  • 13:28 The words about a negative deposit rate continue to hurt the euro. 1.3070.
  • 13:35 Press conference ends with EUR/USD on the ropes due to the hints. See analysis:  Draghi Open to “Nuclear Option” – a Negative Deposit Rate – EUR/USD Crashes

Background

ECB cuts the main lending rate from 0.75% to 0.50% and the marginal rate from 1.50% to 1%. The deposit rate was left unchanged at 1%.

EUR/USD responded by moving higher immediately afterwards, because the ECB didn’t go to far.

Expert score

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