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Euro hits two-year low after ECB signals future stimulus – business live Euro hits two-year low after ECB signals future stimulus – business live
(32 minutes later)
A question on Libra, Facebook’s planned digital currency. Draghi was clearly prepared for it, as he read a long list of concerns from his notes.
Libra was not an issue for the governing council but was discussed quite extensively in the G7, Draghi says. There was a pretty unanimous view that there were concerns as well as interest.
They were: cybersecurity, anti-money laundering, terrorism, criminal use, privacy, tax evasion, monetary policy transmission, financial stability and the possibility of changes to the global payments system.
These need to be addressed before regulators will allow Libra, Draghi says. That’s quite the to-do list for Facebook boss Mark Zuckerberg.
A year ago many economists thought Draghi would leave Frankfurt with his first rate hike. That has been proven almost certainly wrong, but there might still be some action before he leaves.
Wolfgang Bauer, fixed income manager at M&G Investment, said:
Mario Draghi’s ECB presidency is likely to end not with a whimper but a bang. After revising forward guidance today, an interest rate cut at the ECB’s upcoming monetary policy meeting in September seems highly likely. In addition, the odds of a revival of net asset purchases have increased significantly.
Market reactions once again proved that central banks currently trump any economic woes. And these have been mounting in Europe: Not long before the ECB’s announcement today, and hardly registered by market participants, the Ifo Pan Germany Business Climate Index had dropped to its lowest reading since April 2013. The danger is that investors become too complacent, relying fully on accommodative monetary policy, and ignore the late-cycle risks that are lingering in the background.
What will Mario Draghi do after his term ends on 31 October?
I haven’t come to a determination, he says, rather boringly.
He’s slightly more interesting on his successor, former International Monetary Fund boss Christine Lagarde.
I think she will be an “outstanding president of the ECB”, Draghi says.
The euro is back at about $1.117 against the US dollar, as Draghi sounds less dovish than the statement suggested.
#EUR is taking back gains as Draghi continues to sound less dovish than expected today. No discussion at all on rate cuts can be treated as a lack of urgency on the #ECB side. https://t.co/7BE5xb7IGj
The recession risk is still pretty low, Draghi says, pointing to high employment and other factors which boost spending.
However, manufacturing is struggling, he acknowledges, with spillovers to other sectors of the economy.
If the worsening outlook continues fiscal policy support will be needed, Draghi says.
*A previous post was edited to correct a typo. Please refresh to see the correct version.
Looks as no unanimity achieved on the next big monetary stimulus package. #ECB’s Draghi: Convergence of views, rather than unanimity among ECB policy makers. Says different nuances of views on parts of package, but committees received broad mandate. pic.twitter.com/n1Wv4nvBo9
Strong language. Above market expectation. #ECB #qe #stimulus https://t.co/okzf5N00xb
We want to see the next projections before taking action, Draghi says. That sets September as a clear date for any move.
Such complex action (interest rate cuts, quantitative easing, and a possible “tiering” system, which excludes some banks from certain rate cuts to protect them from costly negative rates) need a lot of preparation, he said.
“We don’t like what we see on the inflation front,” Draghi says, talking about the new “symmetry” commitment which would allow them to look past a temporary bump in headline inflation.
There is no cap at 2% inflation, he says.
The governing council will act with the same determination whether inflation is above or below the 2% target, he adds.
There was no discussion of cutting rates as soon as today, Draghi says.
Some of the governing council had different answers on different parts of the package, Draghi says (but they eventually converged).Some of the governing council had different answers on different parts of the package, Draghi says (but they eventually converged).
First question finally done.First question finally done.
This has to be Draghi's longest answer ever... and it's only the 1st question. #ECBThis 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.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.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.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?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.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.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.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.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.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.“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.He asks for a more growth-friendly balance of fiscal policies.
And now on to the questions.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.
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.
An important update:
'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.
“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.
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.
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.
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.
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.
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.