In last years, central banks have managed to give markets any sign about the direction of their policies, neither too dramatic nor excessively inaccurate. Today it is the turn for the ECB to take a further step towards the monetary policy easing in Europe. Experts are divided over the tone of Draghi’s words at the central bank meeting. Some expect he will not change it against the relative surprising hawkish speech in Sintra two weeks ago.
Tapering will come anyway, largely because of technical/ political constraints around QE. The ECB will still have to justify this with a macroeconomic narrative. This is what the ECB President has set out to do.However, experts at BoAML believe that what he said yesterday in Sintra central bankers summit is also consistent with a very slow exit.
Brussels is not concerned about the Spanish banks, even despite the problems of a systemic lender like Popular, in the process of being sold. The Spanish banks have shown that they have done their homework and restructured their balance sheets since receiving a European bail-out in 2012.
I don’t have the slightest doubt that Draghi is going to do the impossible to keep the euro, but it doesn’t depend on him. The euro is a false project which should have happened when things were more settled, in other words, as Draghi says, “when there was a single market.”
It was expected Draghi to avoid any discussion of early exit from QE and he did so. The ECB’s president stuck to the December line. “Self sustained”, not “transient” inflation is wanted. Still, things may complicate this spring.
Most observers bet the Draghi would further extend its current asset purchase programme, shoring up confidence in the face of troubled times ahead. Some believed it might reduce the monthly volume, showing its intent to scale down little by little its massive balance sheet.
There was a consensus in the market that the ECB will announce an extension of its current asset-purchase programme and so president Mario Draghi did it by expanding QE more than expected to December 2017. He also committed to do it even longer if needed.”The presence of the ECB on markets will be there for a long time,” he explained.
Money in circulation (M2 in the US, M3 in the Eurozone) is not created by the central bank, but by the private banks when they lend. These loans are the fundamental countepart of M2 and M3. Loans are converted into deposits which provide the liquidity for us to function.
Mari Pinardo | Do you remember the summer of 2012, when Spain’s risk premium reached a record high of no less than 638 basis points? Four summers later, this spread seems like it belongs to a completely different country. Since that fateful summer, Spain’s sovereign risk has declined nearly 550 bp and just last week broke the 100 bp threshold. There are basically three reasons which have pushed the risk premium through the 100 bp threshold: a date for Spain’s caretaker Prime Minister Mariano Rajoy’s investiture, the economic policies which have been in place in the Eurozone since April 2015 and the fact that it looks less likely the Fed will raise interest rates in September.
The financial web Bondvigilantes offers a precise review of the details of Mario Draghi’s magic words from four years ago: “Within our mandate, the ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough”.