Thursday, April 21, 2016

No helicopters at the ECB, not even in the basement

Well, some ECB watchers today might regret that they did not enjoy one of the first sunny days of the year but stayed inside following a rather eventless, not to say dull, ECB press conference. As expected the ECB did not announce any new measures but sent a clear dovish signal, keeping the door open for additional easing in the future.


The ECB’s macro-economic assessment remained unchanged from the March meeting. Risks to the economic outlook are still tilted to the downside and the inflation outlook also remains subdued. Consequently, there was no need for the ECB to change anything in its current monetary policy stance. Interestingly, ECB president Draghi sounded more optimistic about the pass-through of monetary stimulus through the banking sector, referring to the latest Bank Lending Survey. Nevertheless, the outlook for both growth and inflation is still shaky and uncertain enough for the ECB to stay on high alert.


In a rather dull press conference, three topics stood out: the announcement of the ECB’s corporate bond purchasing programme, helicopter money and, last but not least, a reaction to the latest German war of words with the ECB. As regards corporate bonds, the ECB will start purchases in June. The ECB will purchase investment grade bonds from non-bank corporates with a maturity up to 30 years. The ECB could buy up to 70% of each issuance. No numerical target for the monthly corporate bond purchases was announced. As regards helicopter money, Draghi shot down any helicopter some market participants might have seen (or wished to have seen) in recent weeks. According to Draghi, the ECB had never discussed the concept of helicopter money. Finally, as regards the latest reencounter with Germany on low interest rates and unconventional measures, Draghi clearly said that the ECB obeyed the law, not politicians, and stressed the ECB’s independence. Moreover, he remarked that low interest rates were not the cause of problems in the German pension system and should not be mistaken with long-term structural problems. Draghi’s final comment on the debate with Germany was even clearer: too much below-the-belt criticism could eventually have a negative impact on confidence, thereby forcing the ECB to stick to its loose and unconventional monetary policy for longer than necessary.


All in all, there are two key take-aways from today’s ECB meeting: first of all, the ECB is still on high alert and would be willing to implement even more stimulus if the recovery falters or low inflation leads to negative second round effects (even though it’s unclear what these measures would really be). And, secondly, the ECB does not look willing at all to alter its monetary policies as a result of German criticism. German has become a fact of life but it will not change the ECB’s life.


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