ECB Says Much about Doing Nothing

The ECB has not announced any new initiative.  It stands ready to do more next year, but there was no specific mention of sovereign bond purchases.  There was no tweaking of the second TLTRO which will launched next week.   The staff did cut the forecasts for growth and inflation, but Draghi acknowledged that the forecasts do not incorporate recent drop in energy prices. 

The sense of urgency that Draghi (and Constancio) had appeared to express in recent speeches did not seem to be reflected in the press conference.   This help spur a short-covering bounce in the euro that took the single currency back to yesterday's highs.  After initially falling to $1.2280, the euro bounced more than a cent.   Many participants had expected something more, including a commitment on sovereign bonds.  

The staff cut the inflation forecast for next year to 0.7% from 1.1%.  The forecasts for 2016 was pared to 1.3% from 1.4%.  The GDP forecast for 2015 was cut to 1% from 1.6%, and in 2016 from 1.9% to 1.5%. 

To the extent that there is something new today it may lie with how Draghi characterized the expansion of the balance sheet to early 2012 levels as an intention.  He said this is more than "expectation" which was the term used last month, but not to the level of a "target." 

Recall too that with Lithuania joining EMU in January, produces several changes for the ECB.  First, policy meetings will be held every six weeks instead of every month.  Second, a rotating voting system will introduced, so that every central bank will not vote at every meeting as is the case now.  Third, it appears the ECB is getting closer to releasing some kind of record of the policy meetings, though calling them minutes may be a stretch if the FOMC and BOE are thought of as some kind of precedent. 

Draghi does appear to be frustrated with the lack of structural reforms in the euro area.  He clearly advocates greater "sharing of sovereignty", but this is clearly outside of the ECB's mandate to bring about.  Lastly, he said a decision on QE would not require a unanimous decision.  There is clear precedent for this as Germany opposed to SMP, OMT and the covered bond and asset-backed security purchases.    Draghi did see QE having been successful in the US and UK.  He argued that Japan's QE is a bit more complicated as there were several other factors in Japan.