In the first ECB policy meeting after the central bank concluded its QE program on December 31 (which however has not crippled demand and the bid for Spanish, Italian and Portuguese this January hit an all time high), there were no surprises at least in the official statement, which kept rates unchanged and as before, the central bank said it would keep rates "at their present levels at least through the summer of 2019." The ECB also reoeated that it will reinvest principal payments from maturing securities "for an extended period of time past the date when it starts raising the key ECB interest rates."
As expected, the market barely responded with the EUR unchanged as this statement was a carbon copy of the last ECB announcement.
At today’s meeting the Governing Council of the European Central Bank (ECB) decided that the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will remain unchanged at 0.00%, 0.25% and -0.40% respectively. The Governing Council expects the key ECB interest rates to remain at their present levels at least through the summer of 2019, and in any case for as long as necessary to ensure the continued sustained convergence of inflation to levels that are below, but close to, 2% over the medium term.
Regarding non-standard monetary policy measures, the Governing Council intends to continue reinvesting, in full, the principal payments from maturing securities purchased under the asset purchase programme for an extended period of time past the date when it starts raising the key ECB interest rates, and in any case for as long as necessary to maintain favourable liquidity conditions and an ample degree of monetary accommodation.
In 45 minutes is the Draghi press conference where as Deutsche Bank notes, there are three key questions facing Draghi and the Council.
- have the balance of risks tilted to the downside? (DB believes they have).
- will the ECB commit to replacing TLTRO2? (DB believes that there will be a replacement to avoid a potentially disorderly deleveraging, with confirmation by the March meeting at the latest).
- is there a consensus building around a technical or one-off depo rate hike to support the banking system? Although Draghi has hinted at such, the minutes lacked any evidence that the Council is discussing the idea. But that’s not to say that the topic won’t be brought up again in the Q&A.
Watch the press conference live here when it begins at 830am ET.