Thursday, January 21, 2016

Mario Draghi prepares the markets to one new share of the ECB in March – Les Echos

The generalized uncertainty since the beginning of the year pushed the ECB to act. Mario Draghi, the president, has blackened the table on Thursday, citing the difficulties of emerging countries, the increased volatility in financial markets and raw materials and, finally, the geopolitical tensions. While the return to inflation close to 2% back constantly, there is “no reason to capitulate,” said he released to the press.



Ready for further monetary easing

The central bank maintained Thursday the status quo, leaving its rates unchanged, but is ready to further monetary easing likely to be announced at the next meeting in March. “It will be necessary to review and possibly reconsider our monetary policy,” said the president of the ECB. A contingency unanimously approved by the Board of Governors, he said, trying to relativize the internal divisions that have arisen recently.

Before deciding in March The ECB will have on his table the latest projections for GDP and inflation in the euro zone expanded for the first time in 2018. According to the discourse of the European central banker, “the chances of a substantial decline in projected clearly increased, “said Michael Schubert of Commerzbank.

Determination

The importance of correcting projections will determine amplitude of action. It has not been issue on Thursday, assured Mario Draghi. He merely repeated that the ECB has “the power, the will and determination to act,” as he said in his speech early December. He then greatly disappointed the markets with a turn too shy monetary policy. “We can act without limits” staying within our mandate, insisted Thursday Mario Draghi story to drive the point.

These powerful messages immediately reacted markets. The euro, flirting with $ 1.10 in recent days, has fallen to $ 1.08. Bond rates have also significantly relaxed, including the peripheral markets. In turn, equity markets surged in afternoon Paris earning up 2.66% to 4234 points.

Oil, despite a slight upturn in the price of Brent Thursday is becoming the bane of the ECB, which states that the price per barrel of WTI fell 40% from its latest economic forecast end of November. There are fears in Frankfurt “second round effects” on inflation, which could remain “very low or even become negative,” in the coming months. Here, the situation is beyond the ECB. Only producers OPEC, they begin to want to adjust crude supply could trigger a reverse movement on oil prices.



Concern about China

Among emerging countries, China, where a growing paradigm shift is underway, most worries the ECB. The situation is “closely followed” Mario Draghi assured. Beijing “will take its responsibilities” to avoid too hard landing of the economy, he believes, however.

Finally, “Mario Draghi will always surprise us,” Carsten Brzeski commented, Ing Bank. The question is whether the reply given by the ECB in early March will live up to the expectations created new

Jean-Philippe Lacour
Correspondent in Frankfurt

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