ECB Press Conference Live Blog – Draghi Explains Historic

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: Full analysis of the hint and crash here.

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.

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