ECB signals it is ready and able to act – ABN AMRO

According to analysts at ABN AMRO, ECB President Mario Draghi went out of his way in yesterday’s press conference to stress that the Governing Council was willing and able to act.

Key Quotes

“He said that the mood in the meeting was one of the Council acknowledging the weakening of the economic cycle and a ‘readiness’ to respond and that it was ‘willing to use all instruments.”

“In addition, he stressed that the central bank’s definition of price stability (below but close to 2%) did not imply a ceiling, but rather that the inflation goal was symmetrical.”

“Forward guidance change likely – We expect the ECB to further push out its forward guidance on the period of unchanged policy rates and ongoing reinvestments. The modest trajectory for economic growth will not be sufficient for underlying inflationary pressures to build. We think that ECB forecasts for growth and inflation remain too high despite recent downgrades. Our base case is that ECB policy interest rates will remain on hold through to the end of 2020 and that reinvestments will continue to the end of 2021.”

“Easier conditions on TLTRO-III – The ECB President said that ‘details on the precise terms of the new series of targeted longer-term refinancing operations (TLTROs) will be communicated at one of our forthcoming meetings. In particular, the pricing of the new TLTRO-III operations will take into account a thorough assessment of the bank-based transmission channel of monetary policy, as well as further developments in the economic outlook’. We think that the pricing will probably be similar to TLTRO-II so banks can borrow at rates as low as the deposit rate if they meet certain lending benchmarks.”