June 11, 2012
As expected, the ECB left its key policy rate at 1% but extended the current full allotment regime to the end of the year. Somewhat surprisingly, the ECB staff still forecasts GDP growth this year as being between -0.5% and +0.3%.
In his intro, President Draghi mentioned heightened uncertainty with regard to the economic outlook. In the Q&A he revealed that all the incoming data after the staff forecast’s cut-off date were weak. His reference to a gradual recovery in the medium term sounded pretty much like whistling in the dark. He repeated that monetary policy cannot fill other institutions’ lack of action and still hopes that clearer political signals might get the ECB off the hook. But he seems to fear that the ECB might be forced to act. But how? He said that in the current environment price signals (i.e. rate cuts) might have little effect, but also mentioned (decreasing) economies of scale with regard to further balance sheet expansion.
Still, the frank statement that a small number of council members favoured a rate cut might hint at the direction in which the ECB is leaning. This might also be easier to swallow for the Germanic front in the council, which is increasingly nervous about the size and the quality of the ECB’s and their NCBs’ balance sheets. Text
© Copyright 2013. Deutsche Bank AG, DB Research, D-60262 Frankfurt am Main, Germany. All rights reserved. When quoting please cite “Deutsche Bank Research”.
The above information does not constitute the provision of investment, legal or tax advice. Any views expressed reflect the current views of the author, which do not necessarily correspond to the opinions of Deutsche Bank AG or its affiliates. Opinions expressed may change without notice. Opinions expressed may differ from views set out in other documents, including research, published by Deutsche Bank. The above information is provided for informational purposes only and without any obligation, whether contractual or otherwise. No warranty or representation is made as to the correctness, completeness and accuracy of the information given or the assessments made.
In Germany this information is approved and/or communicated by Deutsche Bank AG Frankfurt, authorised by Bundesanstalt für Finanzdienstleistungsaufsicht. In the United Kingdom this information is approved and/or communicated by Deutsche Bank AG London, a member of the London Stock Exchange regulated by the Financial Services Authority for the conduct of investment business in the UK. This information is distributed in Hong Kong by Deutsche Bank AG, Hong Kong Branch, in Korea by Deutsche Securities Korea Co. and in Singapore by Deutsche Bank AG, Singapore Branch. In Japan this information is approved and/or distributed by Deutsche Securities Limited, Tokyo Branch. In Australia, retail clients should obtain a copy of a Product Disclosure Statement (PDS) relating to any financial product referred to in this report and consider the PDS before making any decision about whether to acquire the product.
