EUROPEAN UNION (OBSERVATORY) – The European Central Bank (ECB) today, following the meeting, expectedly kept all three rates unchanged. However, the final mood of the market was determined during the press conference by the head of the regulator Mario Draghi.
So, the credit rate is kept at 0%, the rate on deposits of the ECB is left at the level of minus 0.4%, the rate on marginal loans is 0.25%.
The main statements of the statement on the results of the meeting remained the same, as well as the volumes of incentive programs.
At a meeting in October 2017, the ECB leadership decided to extend the validity of the quantitative easing program (QE) until September 2018, while reducing the monthly volume of bond redemption from January from 60 billion euros to 30 billion euros.
However, following the results of the meeting on March 8, the ECB unexpectedly removed the phrase from the statement that the ECB executives are ready to increase the volume of QE, if this is required due to a deterioration in the economic forecast or financial conditions. At the same time, the bank confirmed that the repurchase program will last until September, “or longer, if necessary,” or “until the ECB Board of Governors sees a steady inflation adjustment in line with its inflationary targets.”
These formulations are also preserved in today’s statement of the regulator. It also notes that the ECB will continue to reinvest the proceeds from the redeemable bonds for a long time after the completion of the QE, that is, while the European regulator, in fact, copies the path passed by the Fed.
The rates will also stay at the current level for a long time after the completion of the quantitative easing program.
After this, the market was very much waiting for the performance of Mario Draghi. It started at 12:30 UTC.
Before that, the market reaction was very low-key. Market participants began selling a single European currency. Coupled with the dollar, it sank in the moment to the area of 1.2150, but then almost returned to the levels that were before the publication of the outcome of the meeting.
Mario Draghi began with a story about the pace of economic growth. He noted less confident, nonetheless steady growth. According to him, the ECB still expects stable economic growth in the euro area, despite the slowdown. The main downside risks for
economic forecast are connected with external, international factors. In their number Draghi expectedly included “more pronounced protectionism risks.”
On these words, the single European currency reacted with growth.
Really important and sensational statements the head of the European regulator, unfortunately, did not. Basically everything was within expectations.
Market, a little digesting all that was said, in fact, returned to its original state.
Attention of traders has shifted to the situation in the US debt market, where the growth of yields has temporarily stopped, but the situation remains extremely tense, which can provoke very strong movements in the financial markets, and a fairly calm speech by the ECB chairman can hardly make a worthy competition.
In general, the world’s largest central banks remain coordinated actions. While the Fed raises rates, the ECB and the Bank of Japan are not beginning to take action, but are only limited by statements of intent to begin a full-scale policy tightening. However, on the way, they constantly face obstacles in the form of signals about the slowdown of the economy.
It would be foolish to believe that the three largest Central Bank decides to pursue tightening of the policy synchronously, at once having crossed all the efforts of recent years.
Moreover, the US has already faced a problem – a sharp increase in the cost of borrowing.
In Japan and the same Europe, the situation is even worse. Any hint of active action can sow panic in the debt markets, and this, it is important to note, is not a stock market, which affects the financial system not so much.
The debt market is a system on which everything literally rests, and the economy functions precisely thanks to the debt market.
It is worth recalling that the volume of the world debt has reached absolute records, and a sharp increase in yields will essentially lead to the explosion of this debt bubble.
By the way, the yields of German ten-year bonds since the end of last year have already grown significantly, although recently they began to decline.
This only shows that now the market does not believe too much in the ECB’s determination to launch a full-scale tightening of the DCT. However, Draghi himself said that the rates will remain at current levels for a long time.