Mario Draghi addressed questions on recent market volatility and scope for further ECB action after the central bank downgraded growth and inflation forecasts and raised the limit of a country’s debt it can buy citing downside risks to the euro-area economy.
Here's the checklist of what Draghi said at yesterday's press conference:
- HICP rates will remain very low in the near term, may even turn negative toward end of year also due to base effects of oil; impact will be “transitory” due to oil.
- Inflation likely to pick up during 2016 and 2017 although more slowly than anticipated thus far.
- Downside risks to September projections remain.
- Purchase limit on issue share raised to 33 percent from 25 percent, only when no blocking minority.
- Didn’t discuss the issuer limit; size, or pace of the program.
- Program is having a favorable impact on economy.
- For now, will fully implement monthly asset buys; can adjust size, duration if needed; didn’t discuss detail of QE modification.
- No ECB member wanted expansion of QE today.
- Governing Council wanted to emphasize its willingness to act, its readiness to act, and its capacity to act.
- Prospects for China’s economy have weakened, affects trade and confidence.
- Lower external demand owing to weaker growth in EMs weighs on euro-area growth outlook.
- Risks remain to the downside, reflecting heightened uncertainties related to the external environment, notably current developments in EM.
- Economic recovery is expected to continue but at a somewhat slower pace reflecting the slowdown in EM economies
- Still premature to conclude whether these developments could have a lasting impact on output and inflation; downside risks have increased.
- Cutoff for projections was August 12 so events that took place since then are downside risks to the projections themselves; financing conditions since then and even before have tightened.
- What happened in the last few weeks is basically twofold: first a worsening of the situation in several EM economies.
- Second, a tightening of financial conditions across the board.
- Have to see if this is short-term volatility or permanent volatility.
- Need to decide whether medium term outlook has worsened.
- Probably true that risk premia are higher.
- Greece must pass some milestones for waiver reinstatement, GGB QE eligibility.
- For waiver to be reinstated the country has to be in a program for assistance, has to comply with it, and so has to show strong ownership and consistent and significant implementation.
- Central banks may be allowed to publish ELA details if deemed necessary for financial stability.