Ecb: Draghi’s pledge to act relieves markets

The first 2016 European central bank meeting ended without any change to the monetary policy stance. But Mario Draghi is ready to act in the next assembly due on march 10. He didn't give any hint on what kind of actions the Ecb will choose but he is ready to tackle deflation and the markets once again are giving him credit. During the press conference held after the meeting the Governor answered questions on Italy's banking system and on the slump in oil prices. 

"Downside risks have increased again amid heightened uncertainty about emerging market economices' growth prospects, volatility in financial and commodity markets and geopolitical risks". This is the statement mr. Draghi used Thursday to sustain the case for new actions by the European central bank at the next meeting, clarifying that the steps announced at the last 2015 meeting are being underestimated. "There are no limits to how far we are willing to deploy our instruments within our mandate to achieve our objective of a rate of inflation which is below but close to 2 percent”. Currently, this inflation rate is at 0.2 percent in the euro zone" he said. 

Given the deteriorating situation of the economy in China as well as other emerging economies, and the current troubles in the commodity sector, we think that the ECB will announce additional monetary policy actions at the next meeting in March. Due to the recent fall in oil prices, we expect a substantial downgrade of the ECB’s inflation forecast. However, we do not see very much leeway for a significant extension of the ongoing asset-purchasing programme (“quantitative easing,” QE). An additional lowering of the ECB’s deposit rate is more likely, in our opinion.

Mario Draghi answered questions on the Italian banking system, currently under speculative pressure by the markets. Worries regarding the prospects of Italian banks seem overdone, Mario Draghi said, addressing the recent sharp drop in these company’s shares. The so-called Asset Quality Reviews of banks that the ECB conducted over the past two years had already identified possible difficulties within the sector, the ECB President said. Draghi added that “Italian banks have on average a level of provisions similar to what is prevailing in the euro area, and have also a fairly high level of guarantees and collateral”.