ECB more or less as expected

The ECB keeps key interest rates on hold. ECB President Draghi announced some details of the ECB’s new intervention mechanism called “Outright Monetary Transactions” (OMT) and easier collateral requirements.

Mild positive market reaction. All in All, Draghi delivered more or less what was expected in terms of details of the intervention programme considering the leaks over the past few days. Now it is up to the governments to activate the ECBs programme. One surprise – to me at least – was that Draghi did not hint any upcoming rate cut. In fact, he said that the last rate cut took into consideration today’s downward revision of staff GDP growth projections, which does not exactly hint any plans for future action.

The details of the OMT were more or less as expected. Thus 1) conditionality in terms of an EFSF/ESM programme are required. This goes for full programmes as well as for precationary programmes that allows the EFSF/ESM to buy in the primary market 2) IMF will be monitoring 3) the OMT is done with a monetary policy objective, which means that the ECB aims at making monetary policy work and not at bringing sovereign bond yields down to any fundamental level 4) the OMT will be terminated when monetary policy works again or if a country does not meet the conditions 6) the ECB will buy 1Y-3Y bonds and will disclose the amounts weekly and a deeper split monthly 7) there is no pre-determined limits on how much the ECB can buy 8) interventions will be fully sterilised.

Staff projections for GDP growth have been revised down significantly. The central forecasts are -0.4% in 2012 and +0.5% in 2013 – in line with our new projection. Staff projections for inflation have been revised up.

Key ECB interest rates are kept unchaged, refi rate at 0.75%, deposit rate at 0.00% and marginal lending rate at 1.5%.

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