ECB Sticks With ‘At Least Through Summer 2019’ Rates Guidance

The ECB kept everything unchanged on Thursday, as expected.

That includes the following line that became the subject of intense market focus when it was added back in June:

The Governing Council expects the key ECB interest rates to remain at their present levels at least through the summer of 2019, and in any case for as long as necessary to ensure the continued sustained convergence of inflation to levels that are below, but close to, 2% over the medium term.

That’s state-and-date dependent forward rates guidance, and it was key to Mario Draghi’s successful effort to put a dovish wrapper on the June announcement of APP wind down.

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The press conference should be some semblance of interesting, even though no one is expecting anything particularly market-moving. The staff forecasts will be updated and Draghi will probably have to field some questions about Italy. Especially in light of reports that the new populist government is considering an appeal to the central bank for a BTP-centric QE extension in order to keep market participants from punishing the country’s leaders for any fiscal profligacy that shows up in the budget due later this month. Here’s Goldman’s take:

In terms of specific questions, we expect Mr. Draghi to be asked about developments in Italy. We expect Mr. Draghi to deliver his usual comments around the importance of fiscal discipline without naming specific countries. We expect Mr. Draghi to avoid making any direct market commentary related to Italy or Italian policy proposals. With regards to ECB treatment of Italian debt, we expect Mr. Draghi to be non-specific and refer to the general rules already in place.

That last bit is a reference to the prospect of a ratings downgrade and how it could become self-fulfilling.

Headlines out of Italy have been generally upbeat this week, with everyone paying lip service to the need to respect E.U. budget guidelines, but there were rumors on Thursday that Italian Finance Minister Giovanni Tria called PM Giuseppe Conte and threatened to resign over the budget wrangling. Those reports were subsequently played down.

In any event, here’s the full ECB statement which, again, offers no surprises.

Full statement

13 September 2018

At today’s meeting the Governing Council of the European Central Bank (ECB) decided that the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will remain unchanged at 0.00%, 0.25% and -0.40% respectively. The Governing Council expects the key ECB interest rates to remain at their present levels at least through the summer of 2019, and in any case for as long as necessary to ensure the continued sustained convergence of inflation to levels that are below, but close to, 2% over the medium term.

Regarding non-standard monetary policy measures, the Governing Council will continue to make net purchases under the asset purchase programme (APP) at the current monthly pace of €30 billion until the end of this month. After September 2018, the Governing Council will reduce the monthly pace of the net asset purchases to €15 billion until the end of December 2018 and anticipates that, subject to incoming data confirming the medium-term inflation outlook, net purchases will then end. The Governing Council intends to reinvest the principal payments from maturing securities purchased under the APP for an extended period of time after the end of the net asset purchases, and in any case for as long as necessary to maintain favourable liquidity conditions and an ample degree of monetary accommodation.