Draghi--New Meeting, Same Song, but more ELA

The ECB left policy unchanged.  The economic assessment was unchanged, in line with the staff forecasts made last month.  The asset purchases continue to be conducted smoothly.  Inflation bottomed earlier this year, and is expected to remain low over the next several months before rising later in the year.  He saw the recent drop in oil prices as boosting the purchasing power of consumers, but did not link it to new pressure on headline inflation.  Both the supply and demand of credit has improved.

Draghi expressed confidence that the decline in the euro will bolster exports.  However, there is reason to suspect that he will be disappointed. Earlier today the eurozone reported that exports fell 1.5% in May, while imports were essentially flat.  This is similar to Japan's experience, where the weakness of the yen has not spurred a surge in exports.

The main news from the ECB meeting was confirmation that ELA to Greece was increased by 900mln euros.  He said this fully meets the immediate needs as requested by the Greek central bank but adjusted for a one week period.  Draghi notes that the total Eurosystem exposure to Greece is 130 bln euro, while the deposit base is presently about 120 bln euros. 

Draghi argues that no one really doubts that there is a need for debt relief for Greece.  The question, he says, is how is it best delivered within the legal and institutional framework of the monetary union.  He does support making the union more effective by continuing the integration process.

European bonds yields have not responded much to Draghi's press conference.  European stocks have extended their earlier gains.  The euro is chopping around $1.0850-$1.0900. 



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