Previewing The ECB's Interest Rate Decision

Tyler Durden's picture

From RanSquawk

PREVIEW: ECB’s rate-decision due to be released at 1245GMT followed by Draghi’s press-conference at 1330GMT

Super Mario is in the building…

Today marks the beginning of a new era for the ECB, with Mario Draghi taking over the helm from Jean-Claude Trichet as the President of the central bank. Unfortunately for Draghi, the changeover is to take place at a very critical juncture and at a time when market participants are demanding that the central bank takes more pro-active measures to stimulate the stagnating economy which stands on the brink of a double dip recession. However, such action may prove difficult for Draghi to push through the governing council since doing so only few months after Trichet announced that the central bank is to resume covered bond buying and 12-month LTROs risks undermining the central banks’ credibility. Another reason why a rate cut may prove futile is that the meeting coincides with the G-20 summit where leaders of the Eurozone are expected to endorse use of the leveraged EFSF fund as an investment opportunity for countries with a large budget surplus such as China and other BRICS. In turn this indicates that comments stemming from the summit may have a more profound impact on investors’ appetite for the EU related financial instruments and therefore determine whether the EUR/USD pair consolidates above the 1.4000 level.

As such, it looks more likely that the ECB will remain committed to further purchases of various EU bonds via the SMP program until lawmakers in Europe agree on finer details regarding the implementation of the recently proposed leveraged EFSF. This move will be particularly welcomed since the bond yield spread between the German 10-year and Italian 10-year BTP is trading back at record wide levels in spite of Berlusconi’s government introducing further austerity measures to meet the proposed deficit reduction levels. Nevertheless, given that the ECB does not pre-commit to future policy manoeuvre suggests that Draghi may leave the door open for a rate cut later in December should the economic conditions deteriorate further.

Elsewhere, policymakers will remain mindful of the recent controversy stirred by the Greek PM Papandreou after he called for a referendum on measures agreed by the EU leaders to tackle the Greek debt situation in a recent summit. The uncertainty caused by the announcement may prompt the ECB to refrain from further easing until the situation settles down. However, the Central Bank may need to continue with its stance of providing ample liquidity as well as continue buying Eurozone government bonds to micro-manage soaring bond-yields. If the latter is to be the case, Bunds will likely come under pressure and we may observe tightening of the Eurozone 10-year government bond yield spreads, while EUR may also receive support. Finally, ongoing volatility in Eurozone bank shares may guide the ECB to relax collateral rules and market participants will also watch keenly any comments pertaining to ECB’s USD-liquidity operations.

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misterc's picture

Draghi hit will the gas and the break at the same time, raising 0.25% and still keep up bond purchases. The raise will be good for keeping the stability dreamers (Germany) calm.

paarsons's picture

Good Citizens of Metropolis!

We're completely fucked till we flush out all this debt.

We're sitting on 600 trillion dollars of derivatives.

Those aren't my numbers.  They come from Gary Gensler.

We are fucked with a capital F.

God bless you and keep you.

CPL's picture

It's actually 1.4 Quadrillion.  600 Trillion is a number from 4 years ago.


Canada unfortunately has been very bad with derivatives.

CPL's picture

It needs to go up to 25% now with the length of time the rates have been kept low, nearly 11 years of "free" money.


Not 0.25%


If Keynsians don't like the reality of their philosophy that means none of this means a damn thing.

disabledvet's picture

"does nothing." move along. this is all about "threats and contretemps" now.

lapedochild's picture

"As such, it looks more likely that the ECB will remain committed to further purchases of various EU bonds via the SMP program until lawmakers in Europe agree on finer details regarding the implementation of the recently proposed leveraged EFSF."


Stalling the EFSF will have ECB buy till the end of time... very cleaver. What SHOULD happen is that the money that was alread pledged be used to buy bonds. Then whatever is left can be levered up 4x times.

Sequitur's picture

EU destruction is at hand. Nigel RIPS EU president a new one:

"We don't know you, we don't want you . . . ."

AngryGerman's picture

It does not matter anyway. Why even bother watching.

Next thing is to cancel all election until further notice...

CPL's picture

That's already been done.  All most people have been doing is picking brands.

Schmuck Raker's picture

<== Rate unchanged

<== Rate lowered