Universidad Carlos III de Madrid - UC3M

Home page > Asignaturas / Teaching > Economics of European Integration > Monetary and fiscal policy in the European Union > 1.02 Readings for Doing business in Spain > 4.3 The ECB commits the full implementation of measures

4.3 The ECB commits the full implementation of measures

María Martínez / Sonsoles Castillo

Tuesday 15 November 2016, by Carlos San Juan

As expected, at today’s monetary policy meeting there were no changes in the ECB´s monetary policy stance, as the central bank left the key policy rate unchanged at 0.05% and took no additional steps on non-standard measures. Mr Draghi stressed its commitment in executing its Asset Purchase Programmes (APPs) until a sustained path of inflation is achieved, reiterating that the Governing Council’s (GC) focus “will be on the full implementation of our monetary policy measures.” On the inflation outlook, the GC will continue to closely monitor medium-term risks; meanwhile, it has been stressed that risks for the economic outlook have become more balanced, although remaining to the downside. On the economic outlook, Mr Draghi seemed more confident on the recovery, stating that the euro area’s economy has gained momentum since the end of 2014, and that the ban expects the economic recovery “to broaden and strengthen gradually” although he highlighted that this “recovery is conditional upon full monetary policy implementation.” On inflation, the ECB´s statement included an explicit reference to the inflation assessment, as the GC (when it assesses the APPs) will concentrate on “trends of inflation, looking through unexpected outcomes in measured inflation in either direction if judged to be transient and to have no implication for the medium-term outlook for price stability.” Moreover, Mr Draghi said that the central bank will be flexible in its measuring of inflation, and he stated that it is “not going to be judging or assessing on the basis of point-in-time observations," adding that it “are not bound by one specific indicator; we’ll be using a variety of indicators about inflation expectations."

At the press conference, the attention was on questions about the APPS. Mr. Draghi highlighted that the programme is “intended” (emphasising this wording as a powerful signal) to be in place until the end of September 2016. Moreover, this is proceeding smoothly and is having an impact on economic activity. In response to a question about whether the ECB is having problems in finding enough assets to meet its monthly goal of EUR60bn of debt purchases — as in some jurisdictions an increasing share of European debt is yielding below -0.2%, the threshold for the ECB buying bonds - Mr Draghi downplayed these worries of potential scarcity of bonds, saying that they are a "little exaggerated" as the bank does not see any problems. However, he stated that the APPs could be flexible [1] enough if circumstances require; although he made clear that the reduction of the deposit facility rate is not an option. Regarding the speculation about an earlier-than-expected end to the programme, Mr Draghi expressed surprise on this discussion as the programme has only been in place for a month. He added on various occasions that “it´s premature” to change a programme that is working well. Regarding Greece, when Mr Draghi was asked about the possibility of an extension of the emergency liquidity assistance (ELA) to Greek banks, he said that it will continue to approve ELA while Greek banks remain solvent and they have adequate collateral, but he remarked that the ball is now in the Greek government’s court. To reinstate the waiver for Greek government bonds (admitting Greek bonds as collateral for monetary operations again) he clarified that they have to see “a credible prospect for a successful conclusion” of the Greek economic reforms. Moreover, he added that haircuts on Greek debt as collateral were mentioned during the policy meeting, but were not discussed. He said that the GC will return to this question “in due time”. As we expected, the ECB remained firm on the asset purchase plan, as it is at the early stage of the implementation when the (critical) signaling effect is expected to be more powerful, and considering the persistent downside risks on both growth and inflation. Moreover, it will be premature to give any signal on other directions.

[1] Today, the ECB added new agencies to the list of those that qualify to sell it bonds in its APPS. See Implementation aspects of the public sector purchase programme (PSPP)

Follow-up of the site's activity RSS 2.0 | Site Map | Private area | SPIP | Contacto: csm@eco.uc3m.es