PARIS (MNI) – Financial market analysts who tuned into European
Central Bank President Mario Draghi’s monthly press conference on
Thursday heard some relatively hawkish inflation concerns tempered by
worries about the ongoing sovereign debt crisis and high unemployment in
the Eurozone.

Some analysts emphasized what they viewed as the ECB’s increasing
fear of second round inflation effects, while others put more weight on
Draghi’s assertion that it was “premature” to talk about ending the
ECB’s accommodative crisis-time policies.

One analyst even predicted a 50 basis point rate cut as early as
June, though most expected the central bank’s monetary policy to remain
on hold for the forseeable future given the high and rising jobless
rate, particularly in the Eurozone’s peripheral states.

Below are exerpts of analysts comments:

PETER VANDEN HOUTE, ING: “Today’s press conference was a strange
brew between on the hand reassuring the markets that talk of an exit
strategy is premature, while at the same time trying to alleviate the
German fear of an uptick in inflation. Over the last month the ECB’s
policy has been criticized in Germany as potentially stoking inflation.
Mario Draghi clearly wanted to set things straight. In the introductory
statement a new sentence was added claiming that the ECB “will pay
particular attention to any signs of pass-through from higher energy
prices to wages, profits and general price setting.” It seems as if this
remark was targeted at the recent generous wage agreements in
Germany….All in all, the ECB still seems to be prepared to keep its
exceptional monetary policy measures in place for quite some time. The
difficult part will be to keep the Germans in the Governing Council
happy and at the same time putting pressure on peripheral governments
not to come back on their promise of fiscal consolidation.”

FREDERIK DUCROZET, Credit Agricole: I guess I would retain one
word: premature. If there is anything that is clear to me right now is
that the ECB’s exit is very distant prospect. Premature, indeed. I do
agree with (ECB President Mario) Draghi’s statement. The ECB president
had to again do some difficult communication exercise in that he had to
balance the need for cautiousness with regards non-standard policy,
again saying that any exit would be premature. We do not expect any
change in the liquidity policy this year. But, at the same time, he had
to reassure the Germans in particular that the ECB will remain committed
to price stability over the medium term. Again, he did well. He did
perform well in that he had to make sure that, yes, the ECB will do all
that is necessary if and when any inflation pressures emerge. But, I
will retain this word ‘premature’. Both from a non-conventional
liquidity side and from the prospective inflationary pressures, second
effects, pass-throughs from energy to consumer prices, we are in our
view far away from any kind of risk and the ECB is right in my opinion
to remain on hold for now.

JOERG KRAEMER, Commerzbank: “At today’s press conference ECB
President Draghi said that any talk of an exit from the very
accommodative monetary policy is ‘premature’. We cannot agree more. The
ECB has become victim of the success of its own three-year tenders
insofar as the declining stress level lowers the pressure on peripheral
countries to implement reforms. If this caused the sovereign debt crisis
to escalate again, the ECB would likely offer a new round of three-year
tenders.”

JAMES ASHLEY, RBC Capital Markets: “Given that the ECB is still
trying to assess the full impact of the LTROs, it would have been highly
unlikely for him to send any signals about monetary policy or about
liquidity. So, I think that it was relatively uneventful (press
conference) this time around. But, really I think that is really what
should be expected. They sound a little bit more concerned about the
inflation outlook, but nothing too dramatic. Overall, similar to last
month’s statement by and large. A little bit more hawkish, but no real
shifts to speak of. the overall message, the message from the Governing
Council as a whole, is that they are a little bit more worried about
inflation than they were last month, but it’s not a dramatic shift in
tone. They are basically trying to send the message that the time
[provided by the LTROs] has to be used effectively, and I don’t think
that at this stage policy is about to be normalized. They are trying to
find balance and I think they are doing it quite well.”

BENJAMIN REITZES, BMO Capital Markets: “The key phrase is that when
he said any talk of an exit strategy from the LTROs was premature. There
had been some rumblings from more hawkish ECB officials that they were
starting to discuss potential exit strategies, but clearly they should
be far from such things and hopefully they will remain on the sidelines
from that perspective. Lending down in four of the past five months in
Europe; it is clearly too early to reverse any of those easing measures.
Other than that, they have shown that they are concerned about inflation
and that it will stay above 2% for the rest of the year – where it’s
been for quite some time now – makes them clearly uncomfortable. Barring
a meaningful deterioration in economic conditions, it is unlikely that
we would see them ease further.”

PAUL MORTIMER-LEE: BNP PARIBAS: “Changes since the previous
statement were not big, but edged in a less dovish direction. In
particular, Draghi said the ECB would pay close attention to signs of
pass through to wages, profits and the general price setting behaviour
(though the rest of the inflation assessment, including risks was
basically unchanged). This is clearly a reference to German wages,
though Draghi said there was nothing new in the ECB line. The evolution
of the rhetoric and the line that nothing has changed are clearly
inconsistent. Moreover, the President added the phrase “in a firm and
timely manner” to the end of the previous statement that “all the
necessary tools to address potential upside risks to price stability are
fully available.”

JULIAN CALLOW, Barclays: “Following the decision to leave interest
rates unchanged earlier today, there was in general a more hawkish slant
in the tone of today’s ECB press conference. It appears that the
Governing Council has become more concerned about the risk of inflation
pass through from stronger commodity prices….We note that on account
of some recent developments, in particular the German Verdi wage
settlement for public sector workers (which equated to around 3% in the
first year), and the latest batch of indirect tax increases in Spain
(and prospectively in the Netherlands), the ECB may well start to
consider that the risks could edge on the upside, even to its 2.4%
midpoint projection for 2012 HICP inflation.”

TORGE MIDDENDORF, West LB: “I think the ECB are rather undecided
what to do next; should they cut rates lower or exit the expansionary
monetary policy? I think that Draghi was right in pointing out that it
is premature to talk about an exit strategy. We think that the economy
in the Eurozone will be in worse shape than the ECB thinks for the
remainder of the year. We think that the recession is slightly deeper
than what the ECB is forecasting and therefore we are even expecting
further rate cuts: A 50 basis point cut that takes place in June. So I
think that at the moment Draghi doesn’t signal anything when it comes to
further rate cuts, but we think that something will come and we are
expecting it in June.”

CEDRIC THELLIER, Natixis: “President Draghi’s tone was quite more
hawkish about inflationary risk. However, to our point of view,
pass-through is very constrained by both poor pricing power and high
unemployment in the euro area. Conversely, as the threat of a credit
crunch (and deflationary risk) is fading away, a further rate cut would
not be relevant according to the central bankers. In this regard, bank
lending survey results to be released on 25 April will be of the utmost
importance. All in all, the revision of our monetary policy scenario –
we now favour a long-lasting status quo at 1% for the refi rate vs. a 25
bp rate cut previously expected, is much more explained by the lower
risk of a credit crunch than by inflationary pressures.”

MARCO VALLI, Unicredit Research: “The introductory statement shows
some changes from last month, mostly in the inflation section, where the
ECB introduced the following sentence: “We will pay particular attention
to any signs of pass-through from higher energy prices to wages, profits
and general price-setting.” However, we think that this new wording is
unlikely to anticipate any significant policy adjustment in the near
term. First of all, in the Q&A session Draghi was careful to downplay
the implications of this change, clarifying that he does not consider it
as a step-up in inflation rhetoric. Secondly, the growth paragraph took
stock of recent disappointing labor market data and included “high
unemployment in parts of the euro area” as a new dampening factor for
economic activity.”

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