Markets will also be looking to see what Draghi says about the ongoing banking crisis in Italy.
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The European Central Bank remained on hold at its monetary policy meeting held Thursday, slightly delaying its decision to ease interest rates, against the backdrop of lacking bond-buying pressure in the central bank’s asset purchase program amid numerous global headwinds.
“The reaction was a little bit bullish when the (Draghi) press conference started because there were some expectations for more explicitly dovish language”, said Vassili Serebriakov of Credit Agricole.
The ECB kept the rate on the main refinancing operations at 0.0 percent on Thursday, the marginal lending facility rate at 0.25 percent and the deposit facility at -0.40 percent. He said that, so far, banks and other financial institutions, had been “fairly resilient” in the wake of Brexit.
But eurozone inflation stood at a mere 0.1 percent in June, far below the level of just under 2.0 percent that the European Central Bank regards is conducive to healthy economic growth. Investors are becoming increasingly anxious that it may soon come up against a scarcity of bonds to buy, given that many government issues have yields below the minimum, which is set at minus 0.4%.
“Over the coming months, when we have more information, including new staff projections, we will be in a better position to reassess the underlying macroeconomic conditions, the most likely paths of inflation and growth, and the distribution of risks around those paths”, Draghi said.
“In addition, given the fragile nature of economic recovery and the fact that monetary policy remains the key source of stimulus for the single currency area, a sustained monetary easing stance remains an important policy objective”. The negative rate is meant to encourage banks to lend their money out rather than parking it at the ECB, where it would stay idle and not be used to stimulate the economy.
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“We have in place the rules, the rules of state aid and as I have said several times these rules contain all the flexibility to cope with exceptional circumstances”. For instance, without the March package and the nine-month extension that we expect for September, we estimate flat 2017 euro area growth due to Brexit.
