Mario Draghi does not disappoint the markets. The president of the ECB has launched a large package of interventions to react strongly to a "too prolonged period of low inflation":
1) cut rates to 0,15% from 0,25%, a new all-time low;
2) deposit rates were reduced to -0,1%, negative for the first time in Euroland;
3) the Eurotower will interrupt the weekly operations with which it reabsorbs the liquidity created by buying government bonds during the debt crisis, amounting to approximately 165 billion euros;
4) new version of Ltro financing, this time linked to credit to the real economy. The new loans take the name of Tltro, i.e. targeted longer-term refinancing operations, long-term loans to banks aimed at relaunching the credit they provide to households and businesses.
5) the ECB announced to accelerate the preparatory work for the purchase of ABS (asset back securities) to enhance the functioning of the monetary policy transmission mechanism. Draghi specified that the ECB will only buy "simple, transparent and real ABS, i.e. based on real and non-derivative loans".
The stock market, the euro and the spread reacted immediately: the Ftse Mib shot up by 2%, the spread fell below 150 basis points and the euro weakened to 1,3516 dollars. "We finished? No, we're not done yet”, replied Mario Draghi to a question on why the ECB has not launched a real large-scale securities purchase programme, the Qe.
If necessary, the ECB is ready to decide "quickly" on further monetary easing. In short, these are not the last cartridges that Draghi can shoot. In terms of the cost of money, from a practical point of view, the ECB, he specified, has "reached the lower limit" on interest rates, even if further adjustments are technically possible.
Draghi, as in the past months, does not see deflation for Europe, understood as those typical indicators capable of triggering a negative spiral of self-fulfilling expectations, but he specified that "we are reacting to too long a period of low inflation" .
Indeed, the ECB has again cut its estimates for inflation in the Eurozone to 0,7% for 2014, 1,1% for 2015 and 1,4% for the following year. Three months ago economists were forecasting 1%, 1,3% and 1,5% respectively. In the Eurotower's intentions, the ECB's package of measures will serve to bring inflation back "close to but below 2%".
Eurozone GDP estimates have also been cut to +1% for 2014, 1,7% for 2015 and 1,8% for the following year. Three months ago the estimates were at 1,2%, 1,5% and 1,8% respectively.
To those who "accused" him at the press conference of "expropriating" savers by reducing interest rates, Draghi retorted that only growth can make interest rates rise again. And the action of the ECB goes in this direction.
In terms of maxi-loans to businesses and households, the new TLTROs will expire in 2018 with a duration of around 4 years. Initially, banks will be able to obtain about 7% of their total loans to the non-financial private sector (excluding home loans) equal to about 400 billion euros. Two subsequent operations will be conducted in September and December of this year.
Of course, the new maxi-loans launched by the ECB and conditioned on the granting of credit by the banks will require, Draghi said, "three or four quarters" to produce effects on the real economy.
No political digression in the aftermath of the European elections: Draghi got away from the question of a French journalist on the comparison between the Italian premier Matteo Renzi and the French one Manuel Valls. “He asks too much of me with a confrontation between European leaders – he joked -. I have nothing to say about this first question”.
