Draghi Steamrolled Over Objections From ECB’s Own Policy Committee When Restarting QE


10-10-19 06:59:00,

Shortly before the release of minutes from Mario Draghi’s parting meeting, the Financial Times published a leaked report Thursday morning claiming that Mario Draghi moved ahead with plans to relaunch an “open-ended QE” version of the ECB’s APP over the objections of an influential committee inside the central bank, setting the stage for his successor, Christine Lagarde, to confront these divisions as she begins her term at the central bank’s helm.

Though the minutes stipulated that a ‘clear majority’ supported Draghi’s plan, this was one of the rare examples from the president’s five-year term where there was such strident dissent on the central bank’s governing council.

Concern was expressed that not delivering sufficient stimulus, including through the APP, might trigger a reversal of the current favourable financial conditions. By contrast, restarting net purchases would provide a strong signal of the Governing Council’s determination and willingness to act in the light of the current subdued inflation outlook and the potential risk of an unanchoring of inflation expectations.

There was clearly a strong minority that supported a deeper rate cut of 20 bp, as opposed to the 10 bp authorized as part of the central bank’s stimulus, instead of reviving a more limited and size (but unlimited in scope) APP.

A very large majority of members agreed with Mr Lane’s proposal to lower the rate on the deposit facility by 10 basis points to -0.50%, which – together with the reinforced forward guidance – would act on the whole yield curve, especially in the short to medium-term segments, complementing the effects of net asset purchases on the long end of the curve. In this way, the measure would address the high level of short-term uncertainties that currently prevailed and help preserve very favourable financial conditions. While a few members expressed a readiness to consider lowering the rate on the deposit facility by 20 basis points at the current meeting, in particular as part of a package that would exclude net asset purchases, other members felt unable to support a cut of 10 basis points, as they were concerned about the possibility of increasingly adverse side effects from additional rate cuts.

According to the  FT, the bank’s monetary policy committee, on which technocrats from the ECB and the 19 eurozone national central banks sit,

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Draghi Goes All Out: ECB Cuts Rates, Restarts Open-Ended QE, Changes Forward Guidance, Eases TLTRO, Introduces Tiering


12-09-19 12:28:00,

With the market worried that Mario Draghi could surprise hawkishly in his parting announcement…

… that is how the market initially interpreted today’s ECB press release, which cut already negative deposit rates for the first time since 2016 to stimulate the sagging European economy, but by a smaller than expected 10bps to -0.50% while restarting QE but by “only” €20 billion, less than the €30 billion baseline.

However, there was more than enough offsetting dovish bells and whistles, because while the restarted QE (or the Asset Purchase Program) was smaller than expected, it will be open-ended, and the ECB will run it “for as long as necessary to reinforce the accommodative impact of its policy rates, and to end shortly before it starts raising the key ECB interest rates.” Of course, the question here is how long can a safe-asset constrained Europe run an “open-ended” QE, and the answer is it depends on what the issuer limit by nation is, with Frederik Ducrozet observing that “at €20bn/month, assuming up to €5bn in corporate bonds, QE can run for ~9 months under current limits… and for more than 7 years if limits are raised to 50%!” So look for more information on that angle.

At €20bn/month, assuming up to €5bn in corporate bonds, QE can run for ~9 months under current limits… and for more than 7 years if limits are raised to 50%!
We might get details about issuer limits in the separate press releases and/or the press conference. pic.twitter.com/jJ2vrJIiJR

— Frederik Ducrozet (@fwred) September 12, 2019

Additionally, the ECB dropped calendar-based forward guidance and replaced it with inflation-linked guidance, noting that key ECB interest rates will “remain at their present or lower levels until it has seen the inflation outlook robustly converge to a level sufficiently close to, but below, 2% within its projection horizon.” Furthermore, the ECB eased TLTRO terms, with banks whose eligible net lending exceeds a benchmark, the rate applied in TLTRO III operations will be lower, and can be as low as the average interest rate on the deposit facility prevailing over the life of the operation; additionally, the maturity of the operations will be extended from two to three years.

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Draghi ‘Out’ed By ECB Insiders As Liar And Schemer


24-06-19 01:21:00,

Authored by Wolf Richter via WolfStreet.com,

Draghi’s shenanigans get hilarious, months before his term ends.

So here’s ECB President Mario Draghi, whose term ends in October, and he’s at the ECB Forum in Portugal, and in a speech on Tuesday titled innocuously, “Twenty Years of the ECB’s monetary policy” – so this wasn’t a press conference after an ECB policy meeting or anything, but a speech on history at an ECB Forum – he suddenly threw out a whole bunch of stuff…

How, “in the absence of improvement” of inflation, “additional stimulus will be required,” in form of “further cuts in policy interest rates” and additional bond purchases, and how “in the coming weeks, the Governing Council will deliberate how our instruments can be adapted commensurate to the severity of the risk to price stability,” and that “all these options were raised and discussed at our last meeting.”

Whoa! Wait a minute, said the good folks who were part of the ECB’s June meeting. These options were not discussed, they told Reuters on Tuesday.

Draghi had ventured out there on his own – apparently trying to push his colleagues into a corner single-handedly as his last hurrah.

His vision laid out on Tuesday was quite a change from the June 6 post-meeting announcement, which didn’t mention anything about even discussing rate cuts. It said that the ECB expects its policy rates to “remain at their present levels at least through the first half of 2020,” before the ECB would begin to raise them, with the bias still on raising rates, not cutting rates. That was less than two weeks ago, and there had not been another ECB policy meeting since then.

Interviewing six “sources” at the ECB with “direct knowledge of the situation,” Reuters found that these policy makers “had not expected such a strong message and that there was no consensus on the path ahead.”

At the June 6 policy meeting, any possibility of a rate cut or renewed asset purchases had been mentioned “only in passing” and without any substantive discussion. The discussion had instead focused on the new package of loans for the banks,

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Draghi warnt vor politischer Einflussnahme auf Zentralbanken

Draghi warnt vor politischer Einflussnahme auf Zentralbanken

26-10-18 04:36:00,

EZB-Präsident Mario Draghi mit dem Gouverneur der Bank of England, Mark Carney. (Foto: dpa)

EZB-Präsident Mario Draghi mit dem Gouverneur der Bank of England, Mark Carney. (Foto: dpa)

EZB-Präsident Mario Draghi hat vor zunehmender politischer Einflussnahme auf Zentralbanken gewarnt. Die Notenbanken sollten auch in Zukunft unabhängig agieren können, um in der Lage zu sein, die Inflationsentwicklung zu beeinflussen, sagte der Notenbankchef am Freitag auf einer Veranstaltung in Brüssel laut Redetext.

In den USA sah sich die Notenbank zuletzt heftiger Kritik von US-Präsident Donald Trump ausgesetzt, der sie angesichts von Zinserhöhungen als „verrückt“ bezeichnete. In der Türkei hat die Sorge vor einer zu starken Einflussnahme von Staatspräsident Recep Tayyip Erdogan auf die Notenbank mit dazu beigetragen, dass die Landeswährung Lira seit Jahresbeginn rund ein Drittel an Wert eingebüßt hat.

Allerdings ist die US-Notenbank eine von privaten Banken betriebene Institution. Die Fed kann daher nicht gegen die Interessen ihren wichtigsten Shareholder agieren. Die Interessen der Banken decken sich nicht immer mit den Interessen der öffentlichen Hand oder mit jenen der Sparer und Steuerzahler.

„Glaubwürdigkeit hängt an Unabhängigkeit: Die Zentralbank sollte nicht fiskalischer oder politischer Dominanz unterworfen sein“, sagte Draghi am Freitag. Auch sollte sie frei die geldpolitischen Instrumente wählen können, mit denen sie am besten ihr Mandat erfüllen könne. Regierungen sollten die Unabhängigkeit von Zentralbanken schützen. Dies sei entscheidend dafür, dass Währungshüter ihre Aufgabe erfüllen können.

Der Italiener Draghi sieht sich derzeit Angriffen aus seinem Heimatland ausgesetzt. Vize-Regierungschef Luigi di Maio sagte am Freitag, Draghi habe die Atmosphäre vergiftet, anstatt Italien zu unterstützen. Der EZB-Präsident hatte die Regierung in Rom am Donnerstag aufgefordert, im Streit um die hohe Neuverschuldung im Haushalt für 2019 ihren Ton gegenüber der EU-Kommission zu mäßigen. Auch solle sie aufhören, den grundlegenden Aufbau des Euro infrage zu stellen.

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Draghi Opened Pandora’s Box: Now Debt-Deflation Looms For Italy

Draghi Opened Pandora’s Box: Now Debt-Deflation Looms For Italy

22-05-18 06:11:00,

Authored by Chris Whalen via TheInstitutionalRiskAnalyst.com,

This week The IRA will be at the MBA Secondary Market Conference & Expo, as always held at the Marriott Marquis in Times Square.  The 8th floor reception and bar is where folks generally hang out.  Attendees should not miss the panel on mortgage servicing rights at 3:00 PM Monday.  We’ll give our impressions of this important conference in the next edition of The Institutional Risk Analyst.

Three takeaways from our meetings last week in Paris: 

First, we heard Banque de France Governor Villeroy de Galhau confirm that the European Central Bank intends to continue reinvesting its portfolio of securities indefinitely.  This means continued low interest rates in Europe and, significantly, increasing monetary policy divergence between the EU and the US.

Second and following from the first point, the banking system in Europe remains extremely fragile, this despite happy talk from various bankers we met during the trip.  The fact of sustained quantitative easing by the ECB, however, is a tacit admission that the state must continue to tax savings in order to transfer value to debtors such as banks.  Overall, the ECB clearly does not believe that economic growth has reached sufficiently robust levels such that extraordinary policy steps should end. 

Italian banks, for example, admit to bad loans equal to 14.5 percent of total loans. Double that number to capture the economic reality under so-called international accounting rules.  Italian banks have packaged and securitized non-performing loans (NPLs) to sell them to investors, supported by Italian government guarantees on senior tranches. These NPL deals are said to be popular with foreign hedge funds, yet this explicit state bailout of the banks illustrates the core fiscal problem facing Italy.

And third, the fact of agreement between the opposition parties in Italy means that the days of the Eurozone as we know it today may be numbered.  The accord between the Five Star Movement (M5S) and the far-right League Party (Lega) of Silvio Berlusconi marks a deterioration in the commitment to fiscal discipline in Europe.  Specifically, the M5S/Lega coalition wants EU assent to increased spending and cutting taxes – an explicit embrace of the Trumpian economic model operating in the US.

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Draghi warnt Merkel vor neuen Risiken in Euro-Zone

Draghi warnt Merkel vor neuen Risiken in Euro-Zone

23-03-18 01:18:00,

Der Präsident der Europäischen Zentralbank, Mario Draghi, hat Bundeskanzlerin Angela Merkel und andere in Brüssel versammelte Regierungschefs über die Hauptrisiken aufgeklärt, die die aus seiner Sicht günstigen Wirtschaftsaussichten gefährden, berichtet Bloomberg.

Draghi sagte in einer Präsentation, dass die Lage eigentlich sehr positiv sei: Die Investitionen seien auf ein Niveau gestiegen, das seit mindestens einem Jahrzehnt nicht mehr zu beobachten sei. Die Schulden des privaten Sektors sinken und die Kapitalquoten gesunder Banken seien fast 50 Prozent höher als zu Beginn der Krise.
Dennoch sieht Draghi neue Risiken für die Euro-Zone. Er nannte Handelsprotektionismus und eine Schwächung der multilateralen Institutionen, die Streitigkeiten beilegen, als die größten potenziellen Risiken. Zölle und Vergeltungsmaßnahmen würden das Vertrauen untergraben.

Angesichts der noch immer lockeren Geldpolitik könnte ein potenzieller Vorstoß zur Deregulierung der Finanzindustrie zu einer toxischen Mischung führen.

Eine potenzielle Neubewertung von Vermögenswerten in den USA hätte einen Dominoeffekt. Ein Warnschuss wurde zu Beginn des Jahres abgefeuert, als die US-Märkte kurzzeitig abstürzten.

Risiken sieht Draghi auch in der Finanzpolitik der Staaten. Erhöhungen der öffentlichen Ausgaben könnten in den USA und in der EU zu einer Überhitzung führen. Dies gelte auch für Steuersenkungen in den USA.

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