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Euro hits two-year low after ECB signals future stimulus – business live | |
(32 minutes later) | |
Some of the governing council had different answers on different parts of the package, Draghi says (but they eventually converged). | |
First question finally done. | |
This has to be Draghi's longest answer ever... and it's only the 1st question. #ECB | |
The lingering uncertainty on various geopolitical questions is itself a realisation of one of the risks to growth, Draghi says. | |
He goes through the statement in some more detail, emphasising the easing bias in the notes. There is “a consistent degree of optionality” in the statement, he says. | |
If the medium term inflation outlook falls short, the ECB is determined to act, he says, pointing to new developments in their thinking. With muted inflation, that spells rate cuts. | |
Was the decision unanimous to pre-announce an interest rate cut in September? | |
There was “broad agreement” on the assessment of the current economic outlook, Draghi says. | |
The outlook is getting “worse and worse in manufacturing especially”, Draghi says, in a nod to recent data showing the German economy is struggling. | |
Trade wars and, bingo, a hard Brexit, are also risks to the outlook, he says. | |
Past projections suggested there would be a rebound in the second half of the year; this is less likely now, he says. | |
Summing up his opening statement, Draghi makes it clear that loose policy is here to stay, and follows with his standard call for some help from governments on the fiscal side. | |
“An ample degree of monetary accommodation is still necessary” to support the European economy Draghi says. | |
He asks for a more growth-friendly balance of fiscal policies. | |
And now on to the questions. | |
The euro hit that two-year low mark before Draghi started speaking. It traded as low as $1.1100 against the US dollar. | |
The risks remain tilted to the downside because of geopolitical uncertainties, Draghi says. | |
Underlying inflation remains generally muted, Draghi says. | |
Inflation expectations have fallen, so there is more need for support from monetary policy, Draghi says. | |
Somewhat lower growth is coming in the second and third quarters of the year, he adds. | |
You can watch him live here, by the way: | |
Draghi (who is in Frankfurt at the ECB’s headquarters) reads out the governing council’s monetary policy statement. | |
And now for his more specific comments. | |
New information indicates that softening global growth dynamics and weak international trade are still weighing on the economic outlook, Draghi says. | |
He also cites protectionism and emerging market issues – and highlights the weakness in the manufacturing sector. | |
Mario Draghi is about to answer questions. Expect a lot of trying to catch him out on the timing and mix of stimulus measures. | |
Hetal Mehta, senior European Economist at Legal & General Investment Management, said: | |
The European Central Bank (ECB) might have disappointed those looking for an immediate rate cut after the spate of weak sentiment data, but their statement of intent is clear: easing is coming, and soon. A tiered deposit rate, more QE and rate cuts are all options on the menu; Draghi and the rest of the Governing Council are trying to show that they have not run out of tools. Shoring up their credibility is clearly a key priority and they cannot deny any longer that inflation expectations are anchored. | |
The euro is just a whisker shy of two-year lows against the US dollar. | The euro is just a whisker shy of two-year lows against the US dollar. |
It traded as low as $1.1107 in the aftermath of the announcement. If it breaks below $1.1106 it will be the lowest level since May 2017 by my reckoning – tantalisingly close (if almost entirely of symbolic value). | It traded as low as $1.1107 in the aftermath of the announcement. If it breaks below $1.1106 it will be the lowest level since May 2017 by my reckoning – tantalisingly close (if almost entirely of symbolic value). |
The pound is now up by 0.3% against the euro for the day. It’s all ECB-driven: against the US dollar sterling is still flat. | The pound is now up by 0.3% against the euro for the day. It’s all ECB-driven: against the US dollar sterling is still flat. |
An important update: | An important update: |
'ZERO' reaction in #bitcoin on the #ECB statement. #notgold pic.twitter.com/COy1UwCBbQ | 'ZERO' reaction in #bitcoin on the #ECB statement. #notgold pic.twitter.com/COy1UwCBbQ |
Thoughts at the press conference (due in about 20 minutes) will turn to what mix of stimulus measures Draghi et al. will consider necessary at the September meeting. | Thoughts at the press conference (due in about 20 minutes) will turn to what mix of stimulus measures Draghi et al. will consider necessary at the September meeting. |
“The ECB is loading its bazooka, but with what?” asks Claus Vistesen, chief eurozone economist at Pantheon Macroeconomics. | “The ECB is loading its bazooka, but with what?” asks Claus Vistesen, chief eurozone economist at Pantheon Macroeconomics. |
As we have persistently noted, the ECB never pre-commits. But this is as close at it gets. | As we have persistently noted, the ECB never pre-commits. But this is as close at it gets. |
Further easing is on the way. But what kind? We are fairly certain that deposit rate cuts are coming, but today’s initial statement points towards a combination of rate cuts and QE. We are sure that Mr. Draghi will be quizzed intensely about this balance, and options, in the press conference. | Further easing is on the way. But what kind? We are fairly certain that deposit rate cuts are coming, but today’s initial statement points towards a combination of rate cuts and QE. We are sure that Mr. Draghi will be quizzed intensely about this balance, and options, in the press conference. |
Demand for UK government debt has increased, with the yield on the 10-year gilt falling to its lowest level since September 2016. | Demand for UK government debt has increased, with the yield on the 10-year gilt falling to its lowest level since September 2016. |
The yield on the benchmark bond fell to a low of 0.65%. Yields move inversely to prices. | The yield on the benchmark bond fell to a low of 0.65%. Yields move inversely to prices. |
Some reaction from economists is now coming through. | Some reaction from economists is now coming through. |
Ana Andrade, analyst at the Economist intelligence Unit, said it has “laid the ground for a cut, but will wait for September to implement further stimulus – which will then be backed by hard data and fresh macroeconomic projections.” | Ana Andrade, analyst at the Economist intelligence Unit, said it has “laid the ground for a cut, but will wait for September to implement further stimulus – which will then be backed by hard data and fresh macroeconomic projections.” |
Weak economic momentum and rising deflation risk, as measured by the substantial de-anchoring of inflation expectations over the past few months, call for further action. | Weak economic momentum and rising deflation risk, as measured by the substantial de-anchoring of inflation expectations over the past few months, call for further action. |
The press release reveals a much more dovish stance than expected. Up until now the re-start of QE remained a vague possibility. But the ECB’s decision to task the relevant Eurosystem Committees with examining options for further stimulus, and the formal reinforcement of the ECB’s commitment to the symmetry in its inflation aim leave no room for doubt about the ECB’s willingness to act. Whether by re-starting QE or by substantially cutting the deposit rate. | The press release reveals a much more dovish stance than expected. Up until now the re-start of QE remained a vague possibility. But the ECB’s decision to task the relevant Eurosystem Committees with examining options for further stimulus, and the formal reinforcement of the ECB’s commitment to the symmetry in its inflation aim leave no room for doubt about the ECB’s willingness to act. Whether by re-starting QE or by substantially cutting the deposit rate. |
There could be more quantitative easing on the way, with ECB economists in Frankfurt tasked with looking at options to “reinforce” its interest rates actions. | There could be more quantitative easing on the way, with ECB economists in Frankfurt tasked with looking at options to “reinforce” its interest rates actions. |
The ECB’s statement said: | The ECB’s statement said: |
The Governing Council has tasked the relevant Eurosystem Committees with examining options, including ways to reinforce its forward guidance on policy rates, mitigating measures, such as the design of a tiered system for reserve remuneration, and options for the size and composition of potential new net asset purchases. | The Governing Council has tasked the relevant Eurosystem Committees with examining options, including ways to reinforce its forward guidance on policy rates, mitigating measures, such as the design of a tiered system for reserve remuneration, and options for the size and composition of potential new net asset purchases. |