Halister News

(Bloomberg) -- ECB President Mario Draghi said the Governing Council didn’t discuss extending QE nor tapering purchases even as he asserted there won’t be a sudden end to the program.

• NOTE: Draghi’s opening remarks; introductory remarks and Q&A in September here; account of most recent meeting
• Euro spikes on Draghi’s remarks QE extension wasn’t discussed, reverses to near 4-month low at 1.0935 as he reaffirms the need to preserve substantial monetary support; bund curve flattens, swap spreads tighten as scarcity not addressed

QE EXTENSION

• Draghi says QE will run through March 2017, or beyond if needed; extension wasn’t discussed at this meeting
• Remain committed to preserving a very substantial degree of monetary accommodation
• Will continue to act if warranted by using all instruments available within ECB’s mandate
• GC’s assessment in December will benefit from new projections extending to 2019

TAPER

• GC didn’t discuss tapering or the horizon for quantitative easing
• Extraordinary policy support won’t exist forever
• While ending QE abruptly wasn’t discussed by GC, an abrupt ending to bond purchases is unlikely
• A sudden stop isn’t on anybody’s minds and it’s not something that people naturally contemplate

BOND SCARCITY, THE CAPITAL KEY, OTHER TWEAKS

• One area that was discussed was what the ECB should do if confronted with shortage of bonds in some jurisdictions
• While much of the discussion was how to overcome scarcity if it were to become a problem, it’s not a problem now
• QE continues to run smoothly, corporate bond purchases exceed expectations
• Didn’t discuss stock-flow issue of QE

DEPOSIT RATE

• GC briefly discussed negative rates
• No evidence that they hinder the transmission of our monetary policy
• Low rates work
• Recent Bank lending Survey shows net loan demand continues to increase, continued to ease for households, unchanged for non-financial companies
• Credit volumes have recovered since beginning of 2014; there’s other important evidence in M3 data: the largest contribution to M3 comes more and more from non-government sectors, which shows ECB policy is being transmitted effectively to economy

FISCAL POLICY

• Fiscal policies should also support economic recovery, while remaining in compliance with EU fiscal rules
• Full and consistent implementation of the stability and growth pact over time and across countries remains crucial to ensure confidence in the fiscal framework
• Still, all countries should strive for a more growth- friendly composition of fiscal policies
• Economic recovery in the euro area is expected to be dampened by still subdued foreign demand, the necessary balance sheet adjustments in a number of sectors and a sluggish pace of implementation of structural reforms
• Risks to euro-area economy remain tilted to the downside
• Implementation of structural reforms needs to be substantially stepped up; reforms are necessary in all euro area countries
• Adequate infrastructure is vital to boost investment and jobs

INFLATION

• Inflation continues moderate, steady recovery and gradual rise in line with previous expectations
• No signs yet of a convincing upward trend in underlying inflation
• Supported by monetary policy, inflation will rise further in 2017 and 2018
• Financing conditions reflect expectations that this support will remain in place

GREECE

• Discussions about debt sustainability in Greece are continuing and we’ve expressed concerns
• Measures have to be undertaken to address this problem
• When the time comes we will assess debt sustainability; premature to speculate about purchasing bonds till then

INEQUALITY

• Study by Bundesbank shows by and large policy doesn’t increase inequality; main source of inequality is unemployment
• If you buy assets from people who are wealthy, in short run you certainly increase inequality
• But policy also reduces unemployment, reducing inequality