ECB Unexpectedly Cuts Rate to .25%; Draghi Promises Loose Policy for "Extended Period", "Ready to Consider All Instruments"; What Debasement is Next?

Thursday, November 7, 2013
The ECB did the unexpected today, cutting the interest rate to .25% from .50%.
Here is the ECB press release.
7 November 2013 - Monetary policy decisions

At today’s meeting the Governing Council of the ECB took the following monetary policy decisions:

  1. The interest rate on the main refinancing operations of the Eurosystem will be decreased by 25 basis points to 0.25%, starting from the operation to be settled on 13 November 2013.
  2. The interest rate on the marginal lending facility will be decreased by 25 basis points to 0.75%, with effect from 13 November 2013.
  3. The interest rate on the deposit facility will remain unchanged at 0.00%.
News Conference Text

Bloomberg has the ECB President Draghi News Conference Text.
Here are a few key snips.

  • We decided to lower the interest rate on the main refinancing operations of the Eurosystem by 25 basis points to 0.25 percent and the rate on the marginal lending facility by 25 basis points to 0.75 percent. The rate on the deposit facility will remain unchanged at 0.00 percent.
  •  
  • Our monetary policy stance will remain accommodative for as long as necessary.
  •  
  • The Governing Council expects key ECB interest rates to remain at present or lower levels for an extended period of time. This expectation continues to be based on an overall subdued outlook for inflation extending into the medium term, given the broad-based weakness of the economy and subdued monetary dynamics.
  •  
  • We are ready to consider all available instruments, and, in this context, we decided today to continue conducting the main refinancing operations as fixed rate tender procedures with full allotment for as long as necessary, and at least until the end of the 6th maintenance period of 2015, more precisely on July 7, 2015.
  •  
  • The Eurosystem’s special-term refinancing operations with a maturity of one maintenance period will continue to be conducted for as long as needed, and at least until the end of the second quarter of 2015. The fixed rate in these special-term refinancing operations will be the same as the MRO [main refinancing operation] rate prevailing at the time.
  •  
  • We decided to conduct the three-month longer-term refinancing operations, the LTROs, to be allotted until the end of the second quarter of 2015 as fixed-rate tender procedures with full allotment. The rates in these three-month operations will be fixed at the average rate of the MROs over the life of the respective LTRO.
  •  
  • The risks surrounding the economic outlook for the euro area continue to be on the downside. Developments in global money and financial market conditions and related uncertainties may have the potential to negatively affect economic conditions. Other downside risks include higher commodity prices, weaker than expected domestic demand and export growth, and -- and slow or insufficient implementation of structural reforms in euro area countries.

What Debasement is Next?

It could be anything. Here is the key sentence: "We are ready to consider all available instruments, and, in this context, we decided today to continue conducting the main refinancing operations as fixed rate tender procedures with full allotment for as long as necessary, and at least until the end of the 6th maintenance period of 2015, more precisely on July 7, 2015."

The currency cranks calling for more debasement got their wish today. But given the ECB did not do everything at once, and is only "ready to consider all available instruments", I doubt the cranks will be satisfied.

For further discussion, please see Lunatic Howls for Competitive QE Debasement; Another Swan Dive Into Cesspool of Economic Silliness; Following Lemmings Over The Cliff; It's Madness!

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com