• The ECB kept the leading interest rate unchanged at 1% as widely expected and did not discuss rate changes at today’s Governing Council meeting. There were no changes in the use of non-standard measures and Draghi only offered small changes in the assessment of the current economic situation. It almost seems as if the Governing Council started the Easter holiday a little early.
  • Draghi said that any exit strategy talk for the time being is premature. He explained that such a strategy calls for an assessment of the impact of LTRO I and II and that the data we have so far does not take account of the second LTRO, so it is only a partial assessment. He said that we have avoided a major credit crunch, but there is much more to look into. We think that the ECB will continue this “wait and assess” strategy, and will not make adjustments to monetary policy in the months to come (unless some disruptive event materialises of course).
  • In the press statement, Draghi gave a more detailed assessment of money and credit data than usual, and concluded that data up to February confirm a broad stabilisation of financial conditions and thereby the avoidance of an abrupt and disorderly adjustment in the balance sheets of credit institutions as intended. He emphasised that the volume of MFI loans to non-financial corporations and households remained practically unchanged compared with the previous month. 
  • Draghi signaled that high headline-inflation will not cause the ECB to hike rates as long as core inflation and inflation expectations remain well anchored. He even said that inflation this year above 2% is “mechanical updates”. 
  • Draghi emphasized that the ECB is looking with close attention at any pass-through, but also said that he is not stepping up the tone on inflation. And why should he? There is no new information that should indicate a de-anchoring of inflation expectations (5y5y market inflation expectations have been on a declining trend in recent months and SPF five year inflation expectations remain stable) and core inflation will be kept down due to high unemployment and a weak economic outlook.
  •  The ECB expects a moderate recovery in economic activity in the course of the year, but reiterated that the economic outlook remains subject to downside risks related, in particular, to renewed tensions in debt markets and higher commodity prices as the main risks. 
  • Draghi also said that growth will have to come from supply reform and criticised in particular dual labour market policies. He said that the abandonment of these policies will free energy.
  • We continue to expect that the ECB will not embark on an exit strategy any time soon and that it will keep its leading interest rate unchanged at 1% until 2014. The market reaction was muted as the ECB delivered as expected. EUR/USD weakened slightly at the beginning of the press conference as Draghi was perceived as sharpening his rhetoric on inflation, but it slowly climbed back up afterwards.