Skip to main content

Draghi , interest rates, eurozone stability, Post brexit ,hinting public bailout of italian banks,Bonds





The European Central Bank kept interest rates unchanged on Thursday but left the door open to more policy stimulus, highlighting "great" uncertainty and abundant risks to the economic outlook.



Draghi opening Statement 

Signalling a readiness to act, ECB President Mario Draghi argued that Britain's decision to leave the European Union and weak emerging market growth both dampen the euro zone's own outlook, leaving the balance of risks tilted firmly to the downside and possibly requiring action.



But Draghi also noted that growth and inflation were both moving along the path projected in June so more evidence, including fresh staff projections in September, were needed before any decision.

"If warranted to achieve its objective, the Governing Council will act by using all the instruments available within its mandate," Draghi said. "So I would stress readiness, willingness, ability to do so."

The balanced comments give the ECB time until its September meeting to weigh the economic costs of Brexit without fuelling excessive market expectations, potentially leading to disappointment, even if it does decide to act.

Indeed, the euro EUR= and German yields were broadly unchanged late on Thursday with little volatility during Draghi's news conference.

"All in all, today's meeting was one that will quickly disappear from memories," ING economist Carsten Brzeski said. "More action in September is possible but not yet a given."

Keeping its deposit rate at minus 0.4 percent and the main refinancing rate at 0.00 percent, the bank reaffirmed its guidance to keep rates at current or lower levels for an extended period and beyond the scope of its asset purchase programme.


It also repeated that its 80 billion euro ($88 billion) per month asset-buying programme -- which Draghi deemed "quite successful" -- would run until March 2017, or beyond if necessary, until it sees an upward adjustment of inflation toward its target.

Overall, the ECB is buying 1.74 trillion euros ($1.91 trillion) worth of assets to cut borrowing costs, induce spending, lift growth and ultimately raise inflation, which has been stuck either side of zero for the past two years.

But such generosity in monetary policy is bumping up against limits. Draghi has consistently called on euro zone governments to loosen their spending to help out, tweaking his standard statement to argue that government reforms need to be "substantially stepped up".

Sanctions are risks and counter productive for Spain and Portugal



One of imminent issues to handle is the risk that the ECB 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.

Draghi discuss Bundesbank Troika and Developments in Turkey 




Draghi declined to address the issue, disappointing some expectations, but said that technicalities would not stand in the way of the asset buys and the ECB would review the programme if necessary.



Brexit and Italy

Brexit has been seen as a threat to the euro zone's modest investment and consumption-led recovery. But on Thursday, Draghi appeared calm about it.



"Our assessment is that euro area financial markets have weathered the spike in uncertainty and volatility with encouraging resilience, he said.

The announced readiness of central banks to provide liquidity if needed, and our accommodative monetary policy measures, as well as our robust regulatory and supervisory framework, have all helped to keep market stress contained."

The threat remains, however. Early post-Brexit data, such as Germany's ZEW sentiment indicator and euro zone consumer confidence figures, suggest a significant drop in confidence.

But while analysts polled cut their 2017 euro zone growth forecasts to 1.3 percent from 1.6 percent, they left their inflation projection unchanged at 1.3 percent, a mixed reading for the ECB, which targets inflation at just below 2 percent.

Italian banks, weighed down by about a 360 billion euros ($400 billion) in bad debt and falling share prices, are also a headache for the ECB, which is the euro zone's bank supervisor.

The Italian government is in talks with the EU to allow state aid to the troubled lenders but wants to shield household investors, a contentious proposal that would test the bloc's new bail-in rules.

Draghi repeated the bank's position that something needed to be done to address the problem of bad loans and also called public backstop in such case "useful" but said this was ultimately between Italy and the European Commission to work out.


Bonds 


Mr Draghi said little to address fears that the ECB could run out of bonds to purchase as part of its landmark quantitative easing programme, which involves buying €80bn of mostly government debt a month until at least March 2017.

“No attention” was given at Thursday’s meeting to “specific instruments” that could extend the shelf life of the ECB’s flagship policy, he said. But he added that the bank had in the past “given enough evidence” that it was able and willing to alter the QE package to meet the €80bn-a-month requirement.

A Brexit-induced flight to safety has heightened long-running concerns that the eurozone’s central bankers will eventually run out of assets to purchase. In Germany, more than half of government bonds are now too expensive for the Bundesbank to buy, with yields below the ECB’s self-imposed floor of minus 0.4 per cent.

Message ahead of G20 meeting china



Further Reading 


IMF Cuts Global Growth Forecasts on Brexit, Warns of Risks to Outlook > Full statement >spanner in the works

Turkey attempted coup: EU says measures 'unacceptable, US Turkey’s has a right and responsibility to defend themselves 

prominent journalist has been killed in a bomb attack in Kiev , Ukriane

You should take action for cheating in sports ,Usain Bolt Olympic 100m legend ,plans for RIO 2016
Turkish military Coup failure , coup d'état to depose Erdogan Government over

IAAF RESPONSE TO MCLAREN REPORT by upholding exclusion from international competition

WADA Independent Maclaren report state-sponsored doping by Russia 2014 Winter Olympics jeopardizes RIO 2016

Heat Wave House prices rising by £16,000 a year, data says construction up 3.3% for new build homes

Secretary John Kerry with UK Foreign Secretary Boris Johnson ,Special relationship Syria Yemen TTIP

Boris Johnson , Foreign Secretary comments on the anniversary of Iran nuclear deal

UK Government to give up EU presidency, focusing on Brexit

New Housing Minister , Secretary of state welcomed into Parliament under Theresa May Watch

Trident Nuclear deterrent, majority of MPs voted renewal , UK Parliament ,July18 2016
Soldier Dies in Brecon Beacon Military Training Exercise

John Kerry US sec Fredericka Mogherini EU-U.S relations Unbreakable,Turkey Coup ,Nice Attack
World leaders stand united strongly condemning vile attack in Nice ,France @onthemarketblog

Cabinet reshuffle ,Pending Brexit Divorce, Stakhanovite constitution , EU president Juncker Thoughts on New PM May

Estate Agent son who's dating Margot Robbie and May appoints new housing Minister

David Cameron's last PM's questions Highlights ,I will be willing you all.on thankyou

I'm on the ballot paper Jeremy Corbyn May the best labour Candidate win Leadership BBC Anyone ?

European ceiling plaster , yet to settle , Boris Johnson Foreign Secretary comment on 1st Day

Robert Peston ? Angela Eagle launches Labour Leadership Challenge to Jeremy Corbyn

Cabinet reshuffle ,Pending Brexit Divorce, Stakhanovite constitution , EU president Juncker Thoughts on New PM May

Theresa May takes power as the new UK prime minister officially received by the Queen to form New Gov Administration

David Cameron's last PM's questions Highlights ,I will be willing you all.on thankyou


Robert Peston ? Angela Eagle launches Labour Leadership Challenge to Jeremy Corbyn

Sajid Javid to meet Indian Finance Minister Arun Jaitley and Indian Commerce and Industry Minister Nirmala Sitharaman, Post Brexit

London council early morning raid finds 17 men living in three bed terrace

UK share price up, though early post Brexit days will remain Volatile says Governer Mark Carney BoE

Bank governor Mark Carney eases rules for banks to meet Brexit challenge

Queen Elizabeth Speech Scottish Parliament 5th Opening staying calm and collected