Draghi answers questions in the ECB press conference
- Underlying inflation has been muted
- Confidence in the outlook is based on continued growth and strong employment
- There is a profit squeeze and it's only a matter of time until it's passed through
- We were unanimous in assessing the factors that caused the slowdown, namely the 'increasing general uncertainty'
- Decision was unanimous about acknowledging weaker momentum
- If risks persists, momentum will be weak for longer
- Cites slowdown in China,m waning US fiscal stimulus
- Likelihood of recession is very low
- The ECB has given itself more time to assess risks
- ECB has a full toolbox available
- If we do TLTROs, there should be a monetary policy reason
- We don't want to be in the situation where lower rates aren't transmitted
- Can't exclude a more benign economic outcome
- Doesn't believe a recession in Italy or Germany likely
The guidance about hiking after the summer remained in the statement but it sounds like that's going to be removed or extended unless the data turns around between now and the March meeting.
The euro dipped on the shift to a negative balance of risks but has rebounded back to 1.1340 in part due to USD weakness. This comment also helped:
"When market places first rate hike in 2020...shows they have understood our reaction function," he said. The endorsement of a hike next year is a bit hawkish as well as the apparent reluctance to use TLTROs and LTROs.
