As widely expected, the European Central Bank opted to keep interest rates unchanged, with the refinancing rate (0.05%), deposit facility rate (-0.2%) & marginal lending rate (0.30%) all on hold in the wake of its April policy meeting. Despite the ho-hum decision, there were some unexpected fireworks (or more accurately, confetti) in ECB President Mario Draghi’s subsequent press conference.
Draghi’s mettle was tested early in his speech, when he was attacked by a confetti-wielding protestor chanting “End ECB Dictatorship!” Thankfully, the ECB President was able to quickly recompose himself and complete his opening statement without too much interruption. Cool as a cucumber, Draghi exuded a calm confidence about the efficacy of the ECB’s QE program to stimulate the Eurozone economy and optimism that the current issues with Greece would soon be resolved [emphasis mine]:
- ECB stimulus must be fully implemented to work
- Eurozone exports should be helped by lower euro
- Risks surrounding Eurozone have become more balanced based on lower euro, QE and lower oil
- Inflation should pick up later in 2015 and continue higher
- ECB will look through unexpected inflation outcomes
- ECB exposure to Greece is €110 billion, largest of any individual Eurozone country
- ECB will not consider lowering the deposit rate to increase the amount of bonds available for QE
- No evidence of a bond market bubble so far
In essence, Draghi “stuck to the script,” shooting down any suggestion that ECB was planning on winding down its QE program prior to the promised 18 months (September 2016) or imminently planning on expanding the program. Beyond the early protest, the press conference passed with minimal drama.
The immediate reaction to Draghi’s press conference is somewhat subdued, mirroring the lack of new insight into the ECB’s intentions. EURUSD has edged up from about 1.0600 prior to the press conference to 1.0655 as of writing, but that is more attributable to weak US data released at 9:15ET, rather than anything Draghi said. Meanwhile, US and European equities are trading up about 0.5%, and German 10-year bund yields continue to hit new record lows at 0.12%.