once again, Mario Draghi has shown the power that your words have on the behavior of the markets. Forty-five minutes after the interest rates of european bonds (including the Portuguese ones) have risen with the announcement of the decision of the ECB to reduce the amount of the monthly purchase debt from 80 to 60 billion euros, the central bank president did in the press conference all that was possible to convince the markets that what you are watching is not a indent on expansionary monetary policy in the euro zone. And apparently with some success.
The word of the moment in the markets is "tapering". This is the expression used in English to describe a scenario in which a central bank takes in a progressive manner, the stimuli that is to offer to the economy. Already began to be made by the Federal Reserve and now wonders when it is that the European Central Bank will opt for the same path.
ECB buying debt until the end of 2017, but in a smaller quantity
announce that it would extend its program of asset-buying (with that try to stimulate economic activity and raise inflation) by nine more months, by the end of 2017, but at the same time reducing, from April, the amount of monthly purchases that are held, and the leaders of the ECB led to an immediate perception in the markets that "tapering" had just come to Europe. In the minutes following the decision, the euro appreciated against the us dollar and the interest rates of the bonds of the euro area countries (Germany, but especially peripheral countries such as Italy and Portugal) rose sharply.
however, when presented in the usual conference following the meetings of the Board of Governors of the ECB, Mario Draghi seemed to be already prepared for this reaction. All that said and announced the following served to demonstrate to the most sceptical that the central bank is not the start to remove its stimulus of the economy.
she Began by saying that the choice made was to extend for a further six months the program of purchase of debt by maintaining the pace of the monthly 80 million euros, or extend by nine months, reducing from April the monthly purchases of 60 billion. And that the second hypothesis was chosen because what the ECB wants is an image of a "sustained presence on the market".
The president of the ECB repeated even several times the idea, also expressed in the early release, that if the financial and economic situation the return of the warrant, the bank is ready to increase volume of shopping and further extend the program.
Then, to leave no doubt, stated that a scenario of progressive withdrawal of the policy of extraordinary stimulus from the ECB "is not in sight", "was not discussed at the meeting", and what this means, ensures Draghi, that "none of the members of the board of governors argues that a possibility in this moment."
The ECB president also presented the new forecasts the ECB’s growth and inflation in the euro zone. The differences are reduced in relation to the projections of three months ago, but it highlights the fact that, for the inflation (which the ECB aims to put below but close to 2%), provide now a value of 1.3% in 2017 and 1.5% in 2018, when before if pointed to values of 1.6% in two years. And even in 2019, the rate of inflation now predicted is 1.7%. Is this value within what is the mandate of the ECB? Mario Draghi admitted that "not so" and that it was for this reason that the ECB still had to work more", more a signal given that the stimuli are to maintain a horizon over time.
draghi to buy the debt in a year
in addition To these words, Mario Draghi was also armed with measurements to prove what the intentions of the ECB. In the last few months, one of the concerns most often raised by analysts has been that the central bank risks running out of debt enough to buy.
Draghi announced two measures that contribute to broaden the range of obligations eligible. On the one hand, the ECB will now have the option, if deemed appropriate, to purchase securities with interest rates lower than the deposit rate official of the central bank, which is currently in -0,4%.
In practice, this means that the ECB will be able to purchase an important part of the obligations of the German, which had interest rates very negative, and that therefore were not part of the range of eligible securities.
Then, the ECB has also announced that you can spend to buy bonds with a year maturity, when before the minimum limit in a self-imposed was two years. In this case, it widens the range of purchases as possible in all countries.
For Portugal, which already has been feeling the effect of the lack of obligations available to be purchased by the ECB, this may represent an important help, especially now that the program will have a still greater duration.
THE ECB has not opted for enlarging the percentage of securities of a country or of a series of obligations that may hold (33%), which is precisely what limits the purchases of Portuguese debt, because of "legal constraints," said Mario Draghi.
Markets react
in the Face of all these explanations, the markets have changed their layout. Before Draghi speak, there was an appreciation of the euro – a natural reaction if you are thinking of a reduction of the injection of money by the central bank – after the press conference, the single currency began to fall, registering a drop of 1%.
In the interest rates of the debt, the scenario is less clear. From the beginning, before Draghi to talk the trend was clear to all, with a worrying rise in interest rates of debt, not only in countries such as Portugal and Italy, but also Germany.
The following, the trend reversed immediately in Germany, a reaction understandable since Mario Draghi introduced measures that allow the ECB to purchase more debt securities German. But in the peripheral countries, the environment has continued to be of mistrust.
The interest rates of Portuguese public debt to 10 years, who started the day near 3.5%, were at 15.30 close of 3,75%.
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