Fidelity: ECB buys time

“The ECB today left all policy levers unchanged, continuing to guide ongoing QE reinvestment “for an extended time after the first rate hike” and such a potential rate hike is not coming until we’re “through summer of 2019”.

“The subsequent press conference saw President Draghi discuss the downside risks to the growth outlook, an important change from the previous “balanced” assessment. Any policy impact of that change in assessment was not announced today, though a new targeted longer-term refinancing operations (TLTRO) facility was apparently mentioned by a number of officials - a pretty clear hint that we can expect an official TLTRO announcement at the March meeting, when new staff forecasts will likely confirm the larger downside risks.

“Draghi confirmed the ECB will give itself more time to assess growth risks. When asked on the negative effects of negative rates, he suggested that the negative effects on net interest margins are compensated for by other, positive effects - therefore not making a strong case for a potential one-off, “technical” hike that was discussed in recent weeks in the market place but also leaving this discussion open for future times.

“The market reaction to all of the above was not dramatic but more or less in line with what investors had guided themselves towards over the last several weeks, namely a fairly dovish Draghi on the back of the increasing dangers to growth in the Euro area and globally. Bunds continued the trend from the morning and moved to somewhat higher prices/lower yields, the Euro currency moved somewhat lower while European stocks pared earlier gains.”