Looking at the nitty gritty linguistic details, Mr Draghi did strongly emphasise that the ECB will maintain an accommodative stance of monetary policy for as long as necessary. During the Q&A he explained that this firming of the language of forward guidance reflected that two factors could lead the ECB to act again – an unwarranted tightening of money market conditions and a deteriorating inflation outlook.
Thus, Mr Draghi struck a dovish tone, which should hardly come as a surprise to anyone. Concerns about inflation and monetary conditions is in line with the signals given by the ECB since the November refi rate cut. Moreover, Mr Draghi said that the Governing Council is closely watching money market conditions. He could have said very close if the ECB was more concerned. And, finally, Mr Draghi explained that the drop in the flash estimate of inflation in December was broadly in line with expectations and partly due to methodical changes in German numbers. He could have been more concerned with the drop in core inflation.
All in all, we heard no new signals from Mr Draghi at today’s press conference. The ECB remains dovish, but not more dovish than a month ago. The ECB is ready to act, but only if inflation falls further, or the recovery slows or money market conditions do not normalise when we get more into the year.
Market reaction
Markets may have been positioned for a slight disappointment from the ECB. At least 1Y1Y EONIA forwards are down around 3 bp, 10Y Bunds yields are 2 bp lower and the EUR has weakened a bit against the USD.
Nordea