Determined Draghi attacked by protester – no policy changes

The ECB left policy unchanged as expected and the focus is on President Mario Draghi: is any policy change in sight? The answer is no. Everything is pre-mature: the program has only begun – no changes in bond buying or rates. The show was stolen by a protester who attacked Draghi and caused a pause in the press conference.

Live blog of the event:

Highlights

• Draghi attacked by protester. She called for the end of ECB dictatorship. Press conference briefly stopped
• QE business as usual – stimulus must be fully implemented.
• Improvement in the euro-zone and money flow.
• Enough bonds to buy.
• No lowering of the negative deposit rate – premature.
• Exchange rate is not a policy target.

Live Blog

• 12:15 GMT Press conference begins at 12:30. All times are GMT.
• 12:15 You can watch the press conference streamed live here.
• 12:15 At the same time, the US releases the Empire State Manufacturing Index for April.
• 12:15 ECB rate decisions are held only every 6 months since the beginning of this year.
• 12:16 The euro is showing signs of weakness, sliding below 1.0580. Credit Suisse says: Stay Structurally Bullish On USD, Stay Patient
• 12:20 Where will EUR/USD be afterwards? Closer to 1.10 or to parity? Parity is probably far.
• 12:23 The situation in the US is far from excellent, but the direction of monetary policy is certainly different.
• 12:25 The ECB moved to a new building a few months ago. It cost quite a big to construct and not everybody was happy with this.
• 12:27 And now the pair is ticking up again towards 1.06. Moves are very limited as Draghi is awaited.
• 12:29 The press conference is about to begin.
• 12:30 US Empire manufacturing index -1.19 vs. 7.17 estimate.
• 12:31 EUR/USD jumps above 1.06 on this data. Draghi still awaited.
• 12:36 Press conference begins late
• 12:37 Draghi sounds under the weather. He begins by describing previous moves.
• 12:38 QE will continue up to September 2016 and depending on inflation development and price stability.
• 12:38 QE proceeding smoothly.
• 12:39 QE is already having effect in credit. Looking ahead, we look at the full implementations of the measures that will contribute to an improvement in the economy.
• 12:40 The developments will lead to a sustained return to
• 12:41 Mario Draghi was attacked by a protester shouting “End ECB Dictatorship”. The woman through confetti before being removed by security. The press conference was briefly stopped.
• 12:40 Press conference resumes. Draghi seems to seem calm
• 12:41 Draghi reads the statement again. Financial market conditions have eased in recent months with a pickup in credit.
• 12:42 GDP rose in Q4 2014. Domestic demand pushed the recovery higher. Euro area economy has gained more momentum.
• 12:43 Financial conditions and fiscal consolidation as well as oil prices help.
• 12:44 Draghi mentions exports becoming more competitive. He likes the weak euro.
• 12:45 And now he directly mentions the euro.
• 12:46 Impact of the lower euro exchange rate and oil prices, inflation is expected to move up in 2015 and 2016.
• 12:47 We monitor the developments in inflation.
• 12:47 Annual growth rate of M3 is moving higher.
• 12:47 Despite improvements in loans, these remain subdued. There is an ongoing adjustment of balance sheets.
• 12:48 Monetary policy moves should help in credit flows.
• 12:49 EUR/USD is marginally higher on the positive insights by Draghi, with the pair above 1.06.
• 12:50 Draghi calls for more reforms.
• 12:50 Full stimulus is needed. As expected, taper talk is too early.
• 12:50 Questions begin
• 12:51 Greek decisions depend on the Greek government.
• 12:51 Exposure to Greece is 110 billion euros, highest when looking at GDP.
• 12:52 Scarcity of bonds is exaggerated. There are enough bonds to buy and worries are at least pre-mature. 
• 12:53 EUR/USD is sliding a bit.
• 12:54 Inflation will be monitored.
• 12:55 Question about Spanish unemployment. More reforms needed?
• 12:56 It takes time for measures to work, but Draghi seems confident.
• 12:57 In Spain, important labor market reforms have certainly helped and the country is seeing a strong growth.
• 12:58 Important questions about tapering and Greece.
• 12:59 Questions about the ELA depend on the Greek government.
• 13:00 About taper: purchases are intended to reach until September 2016.
• 13:00 Sustained inflation is needed.
• 13:00 Draghi makes it clear that tapering is too early: it’s like a marathon runner looking to finish the run after one kilometer.
• 13:01 EUR/USD is down towards the bottom of the narrow range, around 1.0585.
• 13:03 Draghi refuses to discuss case of Greek default.
• 13:04 Draghi explains the removal of the waiver for the Greek government and conveys a message that they are sticking to the rules.
• 13:05 What about lowering the negative deposit rate?
• 13:06 No lowering of negative deposit rates.
• 13:06 No bubble in bond markets says Draghi.
• 13:07 No use of leverage to buy bonds.
• 13:07 We could use macro prudential tools in case of a bubble.
• 13:08 What about the scarcity. Draghi answers that it is pre-mature.
• 13:09 The exchange rate is not a policy target. Recent exchange rate developments are an outcome of different monetary policy cycles which depend on different business cycles.
• 13:10 The previous rise of the exchange rate still has an impact on inflation. There are two competing effects: previous appreciation and previous depreciation.
• 13:11 EUR/USD strengthening beyond range to 1.0632. This seems more dollar related.
• 13:12 We are not bound by one specific indicator.
• 13:13 Inflation expectations have risen, and Draghi gives some numbers.
• 13:15 US industrial output disappoints by falling more than expected, -0.6%. This hits the dollar.
• 13:15 Real interest rates are finally declining.
• 13:16 There are procedures for a country to become a member of the euro-area.
• 13:17 Monetary policy helps in structural reforms.
• 13:18 Average structural unemployment rate is 11%.
• 13:19 Structural reforms are essential.
• 13:21 Revisions to previous growth forecasts were significant.
• 13:23 All other institutions see prospects for a recovery. Downside risks are diminished.
• 13:25 Loose monetary policy is there for quite a long time, well before QE.
• 13:26 At the same time, consumer and business sentiment has improved.
• 13:27 Draghi mentions monetary policy divergence which moved the exchange rate.
• 13:28 The pressure to de-leverage has been waning off. Also fiscal consolidation is already moving back.
• 13:29 There is one condition that has made a big difference: the banking system has improved. The health check that banks underwent means that monetary policy is now translated into the real economy.
• 13:30 The better health of the banking system contributed to the improvement and transmission to the real economy.
• 13:31 Draghi repeats that full implementation of the program is needed.
• 13:32 Could the rules of the program be changed without changes in size?
• 13:33 IS the recovery cyclical? Monetary policy cannot work on its own. It’s complicated.
• 13:34 EUR/USD continues climbing to 1.0665.
• 13:35 The effect of the program had three stages: expectations, announcement and implementation. All contributed to the positive outcome.
• 13:35 The determination and the details assured success, so why should we change it?
• 13:38 There was a disproportionate fall of flexibility on the shoulders of the young.
• 13:39 We still have to change the dual labor market conditions, ensuring the flexibility on all segments of the labor market.
• 13:41 Education today is a most important factor for finding a job. Economic conditions are improving.
• 13:42 Press conference ends.

Here is the video of the assault:

Background

The ECB announced its ambitious QE program in January: €60 billion worth of bond buys per month up to (tentatively) September 2016, a total of over 1 trillion euros. The anticipation to the decision and the reaction sent the euro down. This in turn, contributed to the recovery.

The question is: will this be enough for Draghi to begin thinking about the end of the program? See the ECB Quick Preview: 2 things to watch – downwards pressure likely to continue

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