Three days were enough for Mario Draghi to displace the markets. At his first ECB Governing Council, the newly elected president announced a sensational twist: interest rates in the euro area are cut by 0,25 points. In detail, the fixed refinancing rate drops to 1,25%, while the marginal rates and those on deposits with the central bank fall to 2% and 0,50% respectively.
A strong sign of discontinuity with respect to the presidency of Jean Claude Trichet, who has left most analysts stunned. The financial community was absolutely convinced that the new president of the Eurotower would continue to travel along the monetary policy lines traced by his French predecessor, who had raised the cost of money by 25 basis points in April and July.
Cutting rates means widening the purse strings, allowing businesses and households to access credit at lower prices. But doing so also has the effect of expanding the money supply, reinvigorating the price race. Draghi justified the choice by explaining that “although inflation remained high – and should remain above 2% in the Eurozone for a few more months – inflation rates are expected to drop further in 2012, below 2%”. With today's decision, therefore, the price trend "should remain in line with our target levels".
As for growth for next year, the new number one from Frankfurt spoke of possible downward revisions: "The tensions in progress on the markets will attenuate the pace of growth in the second half of 2012". One more reason to try to relaunch investments. However, the countries of the Eurozone must "respect the commitments of 27 October and also be ready for additional measures".
During the Council - Draghi specified - there was no mention of the Italian debt, but the banker stressed at the press conference that "it will not be able to decrease thanks to external interventions. The main pillar is the government's economic policy. Structural reforms are needed to increase competitiveness and create employment”.
The announcement that came from the Eurotower immediately provoked a flare up on the stock markets. Piazza Affari came to gain more than 4%, and then fell back around 15 pm to a more modest 2,3%. Frankfurt (+2,18%), Paris (+1,92%) and London (+1,11%) also performed well. The Italian spread dropped to 434 points.
“Draghi began his mandate with an unexpected first move – commented the American economist Nouriel Roubini – but correct and necessary”.
