Rates at lows "at least until the first half of 2020", new round of Tltro loans on the way. These are the changes announced today by the European Central Bank. These are the last two expansionary moves adopted by the president of the central institute, Mario Draghi, whose mandate is about to expire.
In the euro area "there are no probabilities of deflation - said Draghi - and there are very low probabilities of recession, but there is a drop in inflation expectations", which however does not concern "only Europe". The risks affecting the prospects of the euro area "have gained relevance": in the Governing Council of the ECB "confidence remains on the baseline scenario, but in a context of increased and prolonged uncertainty: in March we could have hoped for an agreement on trade (between the US and China - ed) and on Brexit, but now it's different".
RATES AT THE LOWEST FOR ONE YEAR MORE (AT LEAST)
In detail, the Eurotower announced that the first rate hike could only take place from the second half of next year. Until then, therefore, the main rate will remain at zero, that on deposits at -0,40% and that on marginal refinancing at 0,25%.
SUBSIDIZED LOANS TO BANKS (TLTRO), THIRD EDITION
As regards the new subsidized loans to banks, now in their third edition, credit institutions that grant loans above a reference value will see their interest rate lower "until it reaches a level equal to the average rate applied to deposits with the central bank for the duration of the operation, with the addition of 10 basis points”. The rate on deposits is at -0,40%, consequently the rate on Tlters could go up to -0,30%.
At the press conference, Draghi clarified that the Governing Council of the ECB "is determined to act in the event of adverse contingencies and is ready to adjust all instruments as appropriate" to ensure the pursuit of its monetary policy objectives. Not only that: the Council "discussed new rate cuts and the resumption of Qe", the massive bond purchase program launched by the ECB after the crisis.
MINI-BOTS REJECTED: EITHER THEY ARE ILLEGAL, OR THEY INCREASE THE DEBT
Draghi also rejected the hypothesis of creating the so-called Mini-Bot: “Either they are money, and then they are illegal, or they are debt, and then the debt rises. I don't see a third possibility. "I'll stop here, but I note that the view that the markets seem to have mini-Bots does not seem positive." This was not Draghi's only mention of Italy. After the EU rejection "I don't think Italy will be asked for a rapid reduction of the debt because it takes time to bring down the debt". Italy's plan, he added, will therefore be a medium-term plan "but it must be credible and credibility is measured by how the plan is structured and by the actions taken to implement it and I think this is what everyone is waiting".
POST-QE: ECB WILL CONTINUE REINVESTING AFTER BONDS MATURITY
The European Central Bank has also confirmed that it will continue to reinvest in full the principal repaid on the securities purchased with the quantitative easing and then reached maturity. These reinvestments will continue "for an extended period of time" after a possible rate hike in the second half of 2020, "and in any case as long as necessary to maintain favorable liquidity conditions and an ample degree of monetary accommodation".
GDP FORECASTS REVISED…
Furthermore, the Eurotower revised upwards its forecast for Eurozone growth in 2019 (+0,1 points, to 1,2%), but also cut its estimates for 0,2 by 2020 points and by 0,1, 2021 points for 1,4, bringing the figure to +XNUMX% in both cases.
…AND ABOUT INFLATION
ECB experts instead raised expectations on inflation for 2019 by a tenth of a percentage point (to 1,3%) compared to last March, but trimmed the figure for 2020 by one decimal, to 1,4% . Inflation of 2021% is forecast for 1,6.
