ECB Review: Think before you act – Rabobank

Research Team at Rabobank, reviews the latest ECB decision.

Key Quotes

“Credit where credit is due?

As expected, the ECB kept rates unchanged. It also confirmed that the monthly asset purchases would remain at EUR 80bn until the end of March 2017, or beyond that date if the ECB deems this to be necessary. There was no official announcement regarding the purchase programme’s parameters.

In the press conference, ECB President Draghi was quite upbeat on how financial markets have weathered the uncertainty that followed the Brexit vote. Indeed, he wasn’t too shy to praise the hard work done by the ECB and other central banks in creating an abundance of liquidity, noting that the ECB’s current accommodative monetary policy stance helped to absorb the shock. The Governing Council is much less certain about the actual effects that the Brexit vote will have on the Eurozone economy, however they do see it as a downside risk that has now materialised.

At the September meeting, when the GC will have new staff forecasts at its disposal, Draghi and his fellow GC members should be able to make a better informed decision.

Neutral, almost factual

Indeed, Draghi referred to the September meeting several times, stating that the Governing Council will then re-evaluate all new evidence. Given the number of downside risks that were mentioned, we believe that action in the September meeting (i.e. a 10 bps cut in the deposit rate from -0.40% to -0.50%) remains a realistic possibility.

However, President Draghi did not go as far as previous meetings in signaling any action. Instead, he was very neutral when looking forward to September: neither did Draghi try to signal any action, nor did he try to actively moderate the current amount of market expectations of further ECB measures.

Tight-lipped

Perhaps in order to avoid a slip-of-the-tongue remark, Mr. Draghi responded very brief when answering several questions on potential changes to the asset purchase programme, ranging from potentially abandoning the capital key to tapering the purchases beyond March.

These relatively tight-lipped responses to questions about the purchase programme were perhaps also partly chosen to appear more confident about the current programme, and that the ECB can continue to meet its self-imposed purchase targets in the months to come.”