ECB: Some salient points from President Draghi - Westpac

According to Elliot Clarke, Research Analyst at Westpac, ECB President Draghi provided financial markets with a number of salient points to ponder this week.

Key Quotes

“In response to the continued strength of the Euro Area economy, the reference to potentially increasing the scale of the purchase program was removed from the statement – a first (small) step towards policy being tightened. However, he and the Governing Council also very clearly highlighted that conditions are not yet conducive to policy being tightened. For that to occur, “a sustained adjustment in the path of inflation consistent with its inflation aim” is necessary. We expect the asset purchase program will be extended past September to December at a lesser rate; and after that, an incremental approach to rate hikes will be seen, starting by moving the deposit rate back to zero through the first half of 2019.”

“While the market focused on comments related to Euro Area rate expectations, what Draghi said about fiscal policy in Europe and beyond was equally as important. For Euro Area politicians, there was a two-part call: to step-up structural reforms to remove impediments to growth; and, in contrast to the US, to make use of current above-trend momentum to build a fiscal buffer for future use. President Draghi was also unusually forthright on President Trump’s tariffs, highlighting concern that the actions of others might halt Europe’s progress. President Draghi opining that “If you put tariffs against what are your allies, one wonders who the enemies are” in Q&A highlights the ECB’s and Europe’s opposition to Trump’s new policy. President Trump’s willingness to allow exemptions for “real friends” is unlikely to benefit Europe or Asia; hence the threat of an escalation of trade tensions is real.”