The ECB press conference has begun.
Mario Draghi unveils a package of targeted longer term refinancing operations (TLTROs).
The ECB will also suspend its weekly securities market program (SMP) sterilization.
The initial size of TLTROs is about €400 billion and all TLTROs will mature in September 2018, or in about 4 years.
Two successive TLTROS will be conducted in September and December 2014. “From March 2015 to June 2016 all counter parties will be able to borrow quarterly up to three times the amount of their net lending to the euro area non-financial private sector, excluding loans to households,” said Draghi.
The euro is moving lower after these comments.
ECB cuts 2015 GDP forecast to 1% in 2014. It expects 1.7% GDP growth in 2015 and 1.8% in 2016.
The Q&A has begun.
There will be additional reporting requirement to ensure lending goes to real economy. For all practical purposes the ECB has reached the lower bound of rate policy, Draghi says.
“The main reason to commit to sterilization by my predecessor first and by myself later was based on the effects that this additional liquidity might have on inflation,” says Draghi. “This decision takes place in a background characterised by low inflation, weak recovery and weak monetary and credit dynamics, that’s the reason for suspending this commitment.”
“Mr Draghi is still speaking, but the jist is that he is doing everything short of full QE to support the economy, and that will be reflected in stronger asset prices generally,” Kit Juckes at Societe Generale said in an email. “…And the carrot of full QE is still dangling in front of us.”
“Being able to have unanimity on such a complex set of instruments means a very very extraordinary degree of consensus,” says Draghi. “What is in this TLTRO that makes it different, the cost obviously, it is very low, the term maturity is four years, and the termination that this money not be spent on sovereigns and on sectors that are already experienced or have just come out of a bubbly situation, that’s what in it.”
We don’t see deflation says Draghi.
“There is a deep misunderstanding here. The rates we’ve changed are for the banks, not for the people,” writes Draghi. It’s wrong to think we want to “expropriate savers. …The concerns of savers should be taken very seriously.” Draghi however adds that the decision to lower rates for households is the decision of banks, not the ECB.
The European Central Bank just announced a historic rate cut, pushing interest rates into negative territory.
Specifically, the ECB cut the deposit rate to -0.1%, from 0.0%, effective from June 11, 2014.
At 8:30 a.m. ET, ECB president Mario Draghi will come center-stage as he addresses this morning’s rate cut.
At 9:30 a.m. ET we will have a press conference that is more technical in nature, according to Richard Gilhooly at TD Securities.
He could announce further actions to fight weak growth and low inflation in the eurozone.
Markets are watching for any announcements on an asset purchase program, or quantitative easing. Claus Vistesen at Pantheon Macroeconomics doesn’t expect the ECB to fire any sort of bazooka today though.
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