ECB: Draghi's comments were intended to be more balanced - Societe Generale

ECB President Mario Draghi's comments about reflationary forces replacing deflationary ones were mis-interpreted by markets and were intended to be more balanced, according to Kit Juckes, Research Analyst at Societe Generale.

Key Quotes

“A case of ham-fisted communication that argues for less forward guidance by policy-makers? Maybe, though I think the strategy on both sides of the Atlantic, which is to only change policy settings after ensuring markets won't be surprised, has merit. And more importantly, will continue. What I don't think, is that you can 'unsay' things by expressing surprise at the market reactions, any more than the king's soldiers could put Humpty-Dumpty back together again.”

“The ECB isn't going to hike rates soon. And how fast they move to reduce the pace of bond purchases probably does depend on how much the euro rallies. But the turn in the economy is pretty plain for us all to see. This week it has been the IFO survey and money supply data that show a continued acceleration in underlying loan growth. So of course the lifespan of extraordinarily easy policy settings (particularly asset purchases) is shortening. The lack of inflation, ought to anchor bond yields and affect expectations about what removing extraordinary accommodation means, but they don't change the fact that policy, like the economy, has reached a turn in the road. And that turn is positive for the euro, if only because it has been kept at a very low valuation by the combination of negative rates and bondbuying, despite a large current account surplus.”

“The ECB can't normalise monetary policy without sacrificing the extreme cheapness of the currency, but maybe the ECB President thinks he can avoid a disorderly currency correction if he managers to guide market expectations. From here, we still think we're a heading, erratically, towards EUR/USD 1.20 and above EUR/JPY 130.”