The European Central Bank (ECB) has left the door open to possible policy action come the June meeting of the Governing Council, ECB President Mario Draghi said at Thursday´s press conference.
The Governing Council is "comfortable" with the idea of action in June, he said. In response to a journalist´s query regarding that remark Draghi referenced the following phrase from the introductory statement: "The Governing Council is unanimous in its commitment to using also unconventional instruments within its mandate in order to cope effectively with risks of a too prolonged period of low inflation."
After reaching an earlier intra-day high of 1.3994, the single currency immediately dipped below 1.39 following the comments and was changing hands at 1.3898 as of 14:14.
Come early June, the Council will have further information at its disposal, as well as analysis concerning the outlook for inflation and the availability of bank loans to the private sector.
To take note of, the President of the Eurogroup, Finance Minister Dijsselbloem, attended Thursday´s meeting. That might not be a coincidence given what seems to be increasing political pressure on the ECB.
Meanwhile, Draghi highlighted the effectiveness of the structural economic reforms which had been undertaken in Spain, Greece, Ireland and Portugal, in that order. However, he refrained from mentioning Italy, for example.
Later in the press conference Draghi also referenced the breach of the Stability and Growth Pact towards the beginning of the last decade which led to a loss of credibility by the Eurozone.
As regards the outlook for inflation the central banker said he does see downside risks to prices. Immediately afterwards he added that the Governing Council is not resigned to prices remaining too low for an excessive period.
Lastly, he emphasised that the oft-mentioned volatility in interbank markets had been kept to the shortest part of the interest rate curve, likely due to the fact that markets were certain that if the ECB saw it filtering to longer maturities then the monetary authority would "certainly" act.
Analysts weigh in
"If the ECB were to act in June, would it make a big difference?" asked Holger Schmieding, at Berenberg, in a rhetorical question following the press conference.
His views was: "Probably not. We maintain our view that broad-based quantitative easing including massive purchases of sovereign bonds is unlikely.
[...] It may take only a small drop in inflation in May or smaller changes to the ECB growth or inflation outlook to trigger some policy action short of full-scale QE. But such smaller actions, for instance a modest cut in all (or some) rates, a targeted LTRO or modest purchases of non-sovereign securities above a certain rating threshold, would probably have an impact like the last 25bp rate cut in November 2013: They may lead to a decline in the exchange rate
by, say, a couple of cents, for a couple of weeks."
For his part, Ken Wattret, Co-Head of European & CEEMEA Market Economics at BNP Paribas, added: "Furthermore, a judgement from the ECB that the trend in corporate lending is lagging the economic cycle more than usual, signalling policy transmission impairement, could pave the way to ABS purchases being announced, perhaps as soon as June's meeting."