Halister News

(Bloomberg) -- While the ECB decided there was not enough information to justify discussing specific instruments, President Mario Draghi signaled the Governing Council’s willingness to do more.

• Draghi also said a public backstop for NPLs “would be very useful”
• NOTE: Draghi’s opening remarks here; account of last meeting

• BOND SCARCITY, QE AND CAPITAL KEY
  • Keeps asset-purchase program at EU80b per month
  • The GC discussed the general economic conditions and concluded it didn’t have yet information to take decision
    • Didn’t discuss specific instruments at this point in time
  • ECB wants to stress readiness, willingness, ability to act; proper attention should be given to evidence that’s been received in past few months and ability to exploit flexibility
  • Given prevailing uncertainties, GC will continue to monitor financial and economic developments carefully
  • Headwinds to recovery include U.K. referendum outcome, other geopolitical uncertainty, subdued EM growth prospects, necessary balance sheet adjustment in certain sectors

• ON BANKS
  • Need to address weak profitability ahead, not the solvency
  • Falling bank equity prices are of some significance for policy makers as could lift cost of capital and return on lending would fall
  • NPLs are a problem that needs to be addressed because it’s an obstacle to the transmission of monetary policy; a public backstop is possible in exceptional times
  • Draghi didn’t comment, when asked for his view on the IMF report that Deutsche Bank may be the biggest contributor to systemic risk among the largest lenders

• INTEREST RATES
  • Expect them to remain at present or lower levels for an extended period of time, and well past the horizon of the QE program

• BREXIT
  • It’s a downside risk and one that has materialized
  • Financial markets have weathered spike in volatility with encouraging resilience; financing conditions remain highly supportive
  • Large uncertainties prevail; much will depend on how long it takes for negotiations to be completed
  • Economic forecasts related to Brexit also depend on length of time of negotiations and their result

• FISCAL POLICY
  • The fiscal stance in the euro area is expected to be mildly expansionary in 2016 and to turn broadly neutral in 2017-18
  • In order to reap full benefits from monetary policy measures, other policy areas must contribute much more decisively, both at national and European level; reform needs differ across euro-area economies, with a focus on lifting productivity, improving business environment
  • In an environment of accommodative monetary policy, a swift implementation of structural reforms will not only lead to higher sustainable economic growth but also make it more resilient to shocks

• INFLATION
  • Likely to remain low in next few months before picking up later in 2016, in large part owing to base effects and annual rate of change of energy prices
  • Should increase further in 2017, 2018
  • A cross-check confirmed the need to preserve an appropriate degree of monetary accommodation to secure a return of inflation rates towards levels that are below, but close to, 2% without undue delay