PARIS (MNI) – Analysts who watched the press conference of European
Central Bank President Mario Draghi Thursday agreed that he put the ball
squarely back in the court of Eurozone politicians, making clear it was
up to them to respond to the ECB’s offer to purchase sovereign debt
under its new OMT bond buying program.

But opinions were divided on whether Draghi left the door open for
another ECB interest rate cut. Some said he did, and predicted that
economic weakness would force the bank’s hand sooner rather than later.
Others cited Draghi’s argument that the interest rate channel was not
functioning properly, and concern about higher-than-expected inflation,
as reasons not to expect a rate cut anytime soon.

Excerpts from the analysts’ comments are below:

CARSTEN BRZESKI, ING: “Today’s ECB press conference was one of the
many moments in which the ECB tried to play the ball back to
politicians…All in all, the ECB realizes that there is hardly anything
they can do at this juncture. With the OMT, the ECB has tackled and
exorcised fears of an imminent Eurozone break-up. More monetary
stimulus, standard or non-standard, to support growth is still in the
offing but the fundamental work has to be done by governments. For the
time being, the ECB can lean back, watch and twiddle thumbs.”

FRANK OLAND HANSEN, Danske Bank: “I think we were confirmed in not
expecting further rate cuts from the ECB. When he was asked in the Q&A
about future rate cuts, he talked about the transmission mechanism of
standard measures not functioning fully and thus indicating that they
have to use non-standard measures instead. I think this press conference
confirmed that we will probably not get further rate cuts. That said, I
think that we will see more easing from the ECB in the coming months
because it is much needed. It will probably be in the form of three-year
LTROs – another three-year or potentially an even longer LTRO. I think
that is the most likely instrument to be announced by the ECB. I think
that the ECB has a preference for using the non-standard measures. But
if anything, there are clearly downside risks to this call of unchanged
interest rates. If the economy worsens even further from here, they may
try to lower the rate a bit more; down to half a percent. But as it
looks now, I would say that we are stuck with the 0.75% probably until
2015.”

THOMAS AMEND, HSBC Trinkaus: “One comment that did strike me
was…it is possible that overall risks are viewed as to the downside,
and not just risks to the economic outlook but possibly also the
inflation risks. This could be a hint that they no longer rule out an
interest rate cut – even if we are already at an extremely low level –
and that they might possibly turn the screws again here. However, not in
the next month – for that the hint was too vague and too unclear.
[Draghi] did also stress that no rate cut was currently discussed.
However it could be, if economic data over the next four weeks comes in
correspondingly weak, that there is a more intensive discussion in
November, and that they will then give an outright hint that they may
complete such an interest rate step in December.”

MICHAEL SCHUBERT, Commerzbank: “A few small things stood out to me.
The most important of the small things was that [Draghi] very clearly
stressed that the type of conditionality [for OMT] in the end will be
determined by governments, and not by the ECB. This is already a strong
statement, because he then apparently will accept measures that will not
be too difficult. A tougher aspect was the question of when a country
will gain access [to OMT]. He said one condition is that [countries]
again have full access to markets, with the emphasis on “full.” He said
explicitly that [Portugal's 5-year bond offering] is not sufficient. One
could have interpreted this differently before – that the ECB would not
view this condition so harshly.”

HOWARD ARCHER, IHS Global Insight: “After major policy
announcements in each of the previous three months – an interest rate
cut from 1.00% to 0.75% in July, the announcement of a bond buying plan
in August and the fleshing out of the plan’s details in September – the
ECB’s October meeting was a quiet affair. However, this is likely to
prove a temporary lull, with more policy announcements highly likely to
come before long. In particular, we expect the ECB to cut its key
interest rate from 0.75% to 0.50% before the end of the year, although
it now looks unlikely that the bank will act before
December…Meanwhile, the ECB made no further announcements on its bond
purchase programme, having fleshed out the details in September, but the
bank indicated that it is ready to buy the bonds of pressurized
countries once “all the prerequisites are in place”…Mr. Draghi
stressed that the ECB had played its part and now the onus was fully on
governments to do what was necessary both in requesting aid and in
undertaking corrective fiscal measures and implementing structural
reforms.”

KRISTIAN TOEDTMANN, Deka Bank: “First of all, concerning the OMT,
it was a clear message that Mr. Draghi sees the initiatives as being on
the part of the governments. From his point of view, the ECB has done
its part. We shouldn’t expect any further steps to come from the ECB
now. The ball is now in the governments’ court. Concerning interest
rates, it is more complicated. Mr. Draghi has shown no willingness for
the time being to cut the main refinancing rate or even the deposit
rate. That might have two reasons: first of all, he might think that a
further rate cut doesn’t make too much sense in the given situation. The
other argument might be that he does not want to create a too-favourable
financial environment, in order to keep pressure high on governments in
Spain and Italy to accept conditionality – to find an agreement with the
EFSF or ESM. After that, there might be more room for maneuver for the
ECB to cut interest rates. But for the time being, we see little
movement on those fronts.”

CHRISTIAN LENK, DZ Bank: “The main point in my view was that
[Draghi stressed] we have a backstop in place with the OMT. The ECB is
here, [but] he basically put the ball back in the court of politics. The
ECB has made itself available with the OMT, but in principle governments
must do their homework. That was the basic tone that I heard. I heard no
hints of a rate cut. He also noted that it was not discussed. The
question of course is also whether its effect would be that big. I think
it would be more of a psychological story.”

VICTORIA CLARKE, Investec: “Unsurprisingly the assessment of the
economic outlook set out by Mario Draghi remained fairly gloomy, with
the ECB Chief as usual citing the weak growth outlook and ongoing
tensions. Alongside this, however, the ECB’s assessment of the price
outlook appeared to have evolved over the past month. Inflation risks
were cited as broadly balanced, but the tone of the Governing Council
statement had a more hawkish tilt with the ECB President noting, in
particular, the Council’s intent to continue to ‘monitor closely further
developments in costs, wages and prices’. We suspect nerves over the
near term inflation outlook were more acute, with the ‘flash’ HICP
inflation estimate having risen to 2.7% for September and with further
near term price pressures having emerged.”

MARCO VALLI, UniCredit: “The press conference was relatively
uneventful. Draghi confirmed our impression that the ECB’s current
priority is the transmission mechanism of monetary policy, rather than
the level of interest rates, supporting our forecast that the refi rate
has troughed…Draghi passionately defended the conditionality attached
to the OMT. Conditionality makes the ECB independent from governments,
neutralizes the risk of moral hazard, and creates credit enhancement on
the bonds targeted by the support program via incentive to pursue the
right policies. This has benefits for all the parties involved.
Moreover, the ECB thinks that, at this stage, conditionality should be
mostly about structural reforms, implicitly hinting that a MoU should
not necessarily imply additional significant fiscal tightening. Although
we know that conditionality will be mostly set by governments (via ESM)
and the European Commission, today’s remarks by Draghi come as a useful
(and wise) clarification.”

JULIAN CALLOW: “Also of note in today’s press conference was Mr.
Draghi’s stress on various indicators which he regarded as evidence that
there was still significant fragmentation. Even while he welcomed some
movements in financial markets, particularly strong issuance in
September and lower spreads and volatility, he observed that credit
rationing, high offer-bid spreads and loan provision were still regarded
as very problematic in southern Europe. From this we would conclude that
the ECB would be prepared to act forcefully at the start of an OMT
programme.”

–Paris newsroom, +331-42-71-55-40; paris@mni-news.com

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