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Data's Soft, Draghi's Not

ByDanske Markets
Published 03/08/2013, 06:00 AM
Updated 05/14/2017, 06:45 AM

The ECB has kept all rates unchanged. The Governing Council had a discussion on cutting rates but the consensus was not to. The overall message from Mario Draghi seems to be that as long as the medium-term outlook is okay the ECB will not cut rates further but the ECB will keep rates unchanged at low levels for a long time.

Even though data have disappointed recently, Draghi did not sound very soft and emphasised several times the signs of improvement. In particular, he emphasised the resilient response to the Italian elections and said that financial markets' confidence in the euro area is returning.

Draghi said that there is a weak short-term outlook but in the medium term we continue to see the beginning of a gradual recovery. He also said that the inflation outlook is in line with the medium-term target and that medium-term inflation expectations remain well anchored. We believe the important message here is that a weak short-term outlook is not enough to trigger a rate cut as long as the ECB believes that the medium-term outlook is okay. Poor data today will not trigger a cut if the ECB expects sunshine tomorrow.

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