Moments ago, during a hearing of Economic and Monetary Affairs of the European Parliament, in his prepared remarks, Mario Draghi said that “support from our monetary policy measures is still needed if inflation rates are to converge toward our objective with sufficient confidence and in a sustained manner.” Confirming that no changes to the ECB’s monetary policy are due in the near future,Draghi said that “underlying inflation pressures remain very subdued and are expected to pick up only gradually”, adding that “risks to the euro area outlook remain tilted to the downside” but “relate mainly to global factors”, because the “lack of momentum in underlying inflation reflects largely weak domestic cost pressures” and the “still significant degree of labor market slack and weak productivity developments are weighing down on wage growth.”

While he conceded that “acute deflation risks have disappeared and that inflation is set to pick up over the coming years” he remains “prepared to increase the ECB’s asset purchase programme in terms of size and/or duration.”

In short, his canned dovish statement meant to appease Garman hawks, well mostly Schauble, who over the weekend blamed Draghi himself for the weaker Euro.

What was most interesting however, was Draghi putting on his asset manager hat on – recall that the ECB is the biggest hedge fund in the world, actively managing assets amounting to 37% of the eurozone’s GDP – and opining on European asset values, and when discussing the “potential risk of credit or asset bubbles” he said that “currently, we do not see compelling evidence at the euro area level of stretched asset valuations. Both corporate bond spreads and equity prices appear to be broadly in line with fundamentals” (surprisingly, he did at least concede that “the longer the accommodative measures need to be kept in place, the greater the risks of unwarranted side effects on the financial system become”).

Print Friendly, PDF & Email