“With the latest policy measures only announced in March and some, like the corporate bond purchases and new TLTROs, not even implemented yet, the Governing Council is firmly in wait and see mode for now”. That augurs a busy month ahead as officials keep hoovering up government debt, start buying corporate bonds and enact the first of four long-term loan offerings to banks. “Moreover, starting on 22 June, it will conduct the first operation in its new series of targeted longer-term refinancing operations”. Further information on implementation aspects of the CSPP will be released after the press conference on the ECB’s website.
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It had risen slightly to 0.3 per cent in January. The economic recovery is gradually proceeding.
Draghi is expected to underline that the bank’s stimulus measures are still coming on line and will need time to take effect, and that it’s up to governments to take more steps to improve growth. The euro was last near $1.12 and the yen near 108.8 yen against the dollar. Nevertheless, the outlook remains positive on domestic demand and consumption in particular. The rate on the loans can be as low as the deposit rate, which is now negative. This also suggests that the European Central Bank will need to maintain a highly expansionary policy, curbing potential Euro support. “Maybe they would have done something if oil prices were at $40 or below”. The estimate for 2017 was left unchanged at 1.7 percent, and 2018 was cut to 1.7 percent from 1.8 percent.
The ECB nudged up its inflation outlook for 2016 to 0.2 percent from 0.1 percent previously.
Draghi was also quizzed about a possible “Brexit” as Britain prepares to vote on whether to remain in the European Union on June 23. The rate was at minus 0.1 percent in May. Inflation forecasts for 2017 and 2018 were left unchanged at 1.3 per cent and 1.6 per cent respectively.
The deposit rate was also held at minus 0.4%. Economists projected jobs to grow to 162,000 in May and the unemployment rate is expected to slide to 4.9%.
Since March, ECB has been buying 80 billion euros p.m.to bring liquidity in eurozone and thereby maintain lower interest rates. The annual rate of change of loans to non-financial corporations (adjusted for loan sales and securitisation) stood at 1.2% in April 2016, compared with 1.1% in March. He later said that shift in risk was “not dramatic”. Lending to households has increased 1.5 per cent annually.
The comments come after recent polls indicated a swing in favor of exiting the trading bloc, though betting odds still imply that the majority of Britons will vote to remain. The central bank targets an inflation rate of 2%.
Draghi made it clear that accommodative monetary policy would continue – but that it wasn’t, by itself, enough to restart Europe’s economic engines.
Fielding questions if the zero interest rate policy was creating bubbles in the economy, Draghi said, “low interest rates were a symptom of a weak economy.”.
He repeated that structural reform was essential and that areas other than monetary policy needed to make a much bigger contribution.
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Peter Praet, the ECB’s chief economist, has also warned that inflation expectations may be de-anchoring, which would suggest euro zone companies and consumers are losing faith in the ECB’s ability to raise inflation.
