donderdag 8 juni 2017

ECB Removes Reference To Taking Rates "Lower", Keeps "Well Past" Language

Super Thursday is officially off to the races with the ECB's monetary policy announcement issued moments ago, which while keeping all three rates unchanged as consensus expected, has dropped the reference to "or lower" in the rate guidance, referring to the following sentence from the April 27 statement: "The Governing Council expects the key ECB interest rates to remain at their present or lower levels for an extended period of time, and well past the horizon of the net asset purchases."
# Full statement below: At today’s meeting, which was held in Tallinn, the Governing Council of the 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 for an extended period of time, and well past the horizon of the net asset purchases. Regarding non-standard monetary policy measures, the Governing Council confirms that the net asset purchases, at the current monthly pace of €60 billion, are intended to run until the end of December 2017, or beyond, if necessary, and in any case until the Governing Council sees a sustained adjustment in the path of inflation consistent with its inflation aim. The net purchases will be made alongside reinvestments of the principal payments from maturing securities purchased under the asset purchase programme. If the outlook becomes less favourable, or if financial conditions become inconsistent with further progress towards a sustained adjustment in the path of inflation, the Governing Council stands ready to increase the programme in terms of size and/or duration. While the ommission was broadly as expected as previewed last night, the ECB did keep the "well past" language for the QE asset purchase horizon, in effect sending both a dovish and hawkish signal.
# Here is how ABNAmro previewed the subtle language change: At the same time, we think that "shortening the delay", ie. removing the "well" from "well after the end of" QE would not make sense at this stage, although Peter Praet has been open to it. The euro has appreciated recently, and even if we think that in practice the first deposit rate hike would not wait long after the end of the net purchases, it would be more prudent in our view to know more about the Fed's intentions for after the June meeting before making this move. But such "hawkish risk" exists nonetheless as a potential concession to the most conservative wing of the Governing Council. Similarly citi expected both phrases to be omitted, instead only "or lower" was removed...


Which may explain why the Euro reaction was confused, initially spiking higher, only to retrace all gains...


And now on to Draghi's press conference....