The European Central Bank chose to keep interest rates unchanged during its July meeting.
The ECB kept its refinancing rate at 0.15%, the marginal lending facility rate at 0.40%, and the deposit facility rate at -0.1%.
Draghi pushed interest rates into negative territory in the June meeting.
Draghi has now begun his press conference.
Draghi said monetary policy meetings will occur every 6 weeks from Jan 2015.
The first question concerns forward guidance and details on targeted Long-Term Refinancing Operation (TLTRO) conditions and potential asset backed securities purchase programs.
Remember, TLTROs are subsidized loans in targeted areas, and are intended to boost lending to the non-financial private sector. However, they exclude loans for home purchases.
The overall take up could total $US1 trillion, and then it will be up to the banks, Draghi said. This new measure depending on its take up will have an impact on inflation and growth rate of the euro area, our models say it will have significant impact taking the inflation rate to below 2%.
In terms of participation, he said banks can participate individually or form a group. There are six TLTROs in a quarterly period. “”I’m confident the banks will quickly understand that even though TLTROs are complicated they are very attractive,” he said.
Draghi has said that he doesn’t plan on synchronizing ECB meetings with the Fed or any other central bank.
We are interested in ABS because we want to heal lending channels. No CDO squared or financial derivatives. Transparency is key to this feature.
On a paper from the Bank of International Settlements saying that loose monetary policy is creating euphoric markets Draghi said, “we have a mandate which is price stability and our current stance is geared to achieve this mandate,” He said the ECB is however “quite sensitive to the formation and creation of potential financial stability risks.”
He pointed out that they have taken asset quality reviews, required recapitalization of banks, ahead of results of AQR. “Even in TLTRO operations we’ve excluded lending to real estate purposes and to sovereigns. We’ve introduced treatment for sovereigns that’s quite conservative. We are addressing these risks as we see them. The bottom-line the first line of defence should be macro prudential tools. …I don’t think people would agree raising interest rates now, for the ECB. Interest rates will stay low for an extended period of time and governing council is unanimous in using.”
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