“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 his introductory statement to the press conference.
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It also left unchanged its guidance that rates would stay at present or lower levels for an extended period, and well beyond its asset purchase horizon. “The central bank also said it was also confirming that monthly asset buys of 80 billion euros a month are meant to run until March 2017, “or beyond” if necessary, and in any case until [the Governing Council] sees a sustained adjustment in the path of inflation consistent with its inflation aim”.
The ZEW data “will be some cause for concern, supporting our view that Draghi. will take a dovish tone”, said Berenberg Bank economist Florian Hense. The goal is to raise inflation, now just above zero, to more normal levels and strengthen economic growth.
Brexit has been seen as a threat to the eurozone’s modest investment and consumption-led recovery.
Draghi is expected to argue that Brexit is a political problem, requiring governments, not the central bank to act, a call that is likely to fall on deaf ears, much like his repeated pleas for structural reforms that could lift potential growth.
The seismic effect of Brexit could also deal a heavy blow to the stability of Europe’s financial system.
The combination of the European Central Bank staying put on rates, though not unexpected, and strong economic numbers from the U.S.
One of imminent issues to handle is the risk that the European Central Bank is running out of qualified assets to buy, particularly German government debt, as yields have fallen below its deposit rate, a self-imposed limit for its buys.
The dilemma will be whether to tweak the scheme, making just technical changes, or enact a broader but more controversial shift that could fundamentally alter the nature of the ECB’s quantitative easing. But in a news conference, he said the eventual impact would depend on how long negotiations between the United Kingdom and the European Union on their new relationship take to complete, and what they eventually conclude. “More action in September is possible but not yet a given”. The asset purchase programme (APP) was maintained at 80bn per month until the end of March 2017. “The euro has squeezed higher as Draghi offered no surprise and no strong sense of urgency”, said a trader in a North American bank.
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“We do care about bank equity prices for the transmission of monetary policy”, he said.
