DISSECTION - THE EUROPEAN CENTRAL BANK PRESS CONFERENCE
January 15, 2009 December 4, 2008
The ECB's 50bps cut will be the last until at least March, and we believe
likely until the April-June period. The GC's expectation for the second
THE month in a row is that inflation will be within the confines of price stability
TD over the medium-term, but now feels the risks around that assessment are
balanced. If low energy prices fail to stimulate consumers, or oil
TAKE approaches $30p, the ECB will move to cut. If oil should rise above $40pb
or the economy prove resilient, this may be a long pause.
REAL ACTIVITY
Consumer ...very sluggish domestic demand persisting in the coming quarters...At the
same time, we expect the fall in commodity prices to support real
disposable income in the period ahead…
Investment
ECB Assessment Overall, risks to economic growth remain clearly on the downside.
INFLATION
Non-labour prices Owing mainly to base effects...headline annual inflation rates are projected
to decline further in the coming months…[but then] are expected to
increase again in the second half of the year….Such short-term volatility is,
however, not relevant.
Wages
Credit Monetary trends...support the view that inflationary pressures and risks are
diminishing…More data and further analysis are necessary to form a robust
judgement about the severity and scope of credit constraints and their
possible implications for economic activity.
Expectations …[ECB expectation of price stability] supported by available indicators of
inflation expectations for the medium term.
ECB Assessment …inflationary pressures in the euro area are diminishing...Risks to price
stability over the medium term are broadly balanced.
MPC REASONING
Balance of Risks ...we continue to expect inflation rates in the euro area to be in line with
price stability over the policy-relevant medium-term horizon…
ECB Assessment After today’s decision we consider risks to price stability over the medium-
term to be broadly balanced.
Decision 50bps cut to 2.00%
Link to text
http://www.ecb.int/press/pressconf/2009/html/is090115.en.html
RICHARD KELLY ● SENIOR ECONOMIST ● 416-982-2559
November 6, 2008
The ECB cut by an aggressive 75bps as we expected, but is downshifting.
The risks to price stability are "more balanced," and with the past cuts and
downgraded staff forecasts, inflation rates are now expected to be within
the ECB's medium-term target. Q&A also highlighted the GC's decision
was a "consensus," but not "unanimous" as is the norm, and we assume
the dissent was for less. We believe the ECB is still optimistic on the
medium-term, but the choice next month looks to be between 25bps (likely)
or no change (reverting to cuts every other month), with only a slight risk for
50bps if market and economic developments in the next month are
atrocious.
...we see global economic weakness and very sluggish domestic demand
persisting in the next few quarters...a subsequent recovery should then
gradually take place...
...both global demand and euro area demand are likely to be dampened for
a protracted period of time…Risks to economic growth lie on the downside.
...lower commodity prices and weakening demand lead us to conclude that
inflationary pressures are diminishing further…
...the considerable easing in global commodity prices over the past few
months, which more than offsets the impact of the sharp rise in unit labour
costs in the first half of this year…
...while the underlying pace of monetary expansion has remained strong, it
has continued to decelerate further…Monetary trends therefore support the
view that inflationary pressures are diminishing further, with some risks
remaining on the upside in the medium to longer term...a continued
moderation of the growth rate of loans to the non-financial private sector...
…risks to price stability at the policy-relevant horizon are more balanced
than in the past…
...the evidence that inflationary pressures are diminishing further has
increased and, looking forward, inflation rates are expected to be in line
with price stability over the policy-relevant horizon…a faster decline in
HICP inflation cannot be excluded around the middle of next year, mainly
due to base effects. However, also due to base effects, inflation rates
could increase again in the second half of the year ...
The Governing Council will continue to keep inflation expectations firmly
anchored in line with its medium-term objective.
75bps cut to 2.50%
http://www.ecb.int/press/pressconf/2008/html/is081204.en.html
Link to text
The ECB cutes rates by 100bps in one month's time and doesn't appear to
be done yet. The remaining upside inflation risk (the chance of commodity
price increases) is balanced with even weaker economic profile and now a
risk of a significant inflation undershoot. The ECB decision next month will
revolve around cutting 50bps or 75bps.
...sluggish domestic and external demand…
...the latest survey data confirm that momentum in economic activity has
weakened significantly ...The intensification and broadening of the financial
market turmoil is likely to dampen global and euro area demand for a rather
protracted period of time.
...taking into account the strong fall in commodity prices over recent
months, price, cost and wage pressures in the euro area should also
moderate.
...strong wage growth in the first half of the year…
...the underlying pace of monetary expansion has remained strong but has
continued to show further signs of deceleration...annual growth rates of
broad money and credit aggregates, while still remaining strong, continued
to decline in September…some evidence in the September data that the
recent intensification of the financial tensions has triggered a slower
provision of bank credit...
The Governing Council will continue to keep inflation expectations firmly
anchored in line with its medium-term objective.
...a further alleviation of upside risks to price stability at the policy-relevant
medium-term horizon, even though they have not disappeared completely.
The outlook for price stability has improved further. Inflation rates are
expected to continue to decline in the coming months, reaching a level in
line with price stability during the course of 2009…The remaining upside
risks relate to an unexpected increase in commodity prices…some even
stronger downside movements in HICP inflation cannot be excluded
around the middle of next year...
The Governing Council will continue to keep inflation expectations firmly
anchored in line with its medium-term objective.
50bps cut to 3.25% (following inter-meeting 50bps cut to 3.75% on October
8)
Link to text
http://www.ecb.int/press/pressconf/2008/html/is081106.en.html