The ECB left key interest rates unchanged as widely expected. In the press statement, ECB President Draghi struck a very dovish tone saying that rates will remain at the present or lower levels for an extended period. Moreover, the governing council had an extensive discussion about cutting interest rates – it does not see the 0.50% level as the lower bound – and has an open mind on all interest rates including the deposit rate. That is probably as dovish as the ECB could possibly be without actual actions.
Extended period? It is not entirely clear what this means and it is not entirely clear how this is different from “our monetary stance will remain accommodative for as long as necessary”, as the statement said in June. However, it was clearly meant as a more dovish signal and as a reaction to the recent excessive rise in market rates. Draghi called it forward guidance in an answer to the very first question and said that various types of forward guidance had been discussed and that the governing council was unanimous in choosing this specific formulation. The dovish bias was supported by Draghi when he mentioned an extensive discussion about cutting interest rates and said that 0.50% was not seen as the lower bound on the refi rate. Apart from suggesting that the ECB believes market rates have come up too fast and apart from the fact that the ECB clearly underscores its dovish bias, the new wording probably does not make a big difference in the medium term. There is no commitment embedded. Data is improving and as long as this is the case we would not expect more easing from the ECB. Having said that, today’s tone supports our view that the barrier for more action is very low. Today’s impression is that the ECB is looking for an excuse to cut interest rates again.
Nordea