Fundamental Analysis
February 18, 2013 @ 4:20 pm

Draghi says euro zone recovery remains slow

Mario Draghi reiterated weakness in the euro zone recovery during his speech at the European Parliament on Monday. The European Central Bank President said exchange rates will be monitored to see if they have an impact on growth and prices. This was in reference to the recent sharp rise in the euro.

The following are highlights from questions put to him by the European Parliament today:

REGARDING FOREX

“The exchange rate is not a policy target but is important for growth and price stability.”

“To the downside … appreciation of the euro is a risk”

“On the exchange rate, what I always say is, the exchange rate should reflect fundamentals.”

“Most of the exchange rate movements that we have seen were not explicitly targeted, they were the result of domestic macro economic policies meant to boost the economy. In this sense, I find really excessive any language referring to currency wars.”

“Looking at the nominal and real exchange rate of the euro, we see that by and large, it is around its long-term average.”

“We will have to assess in the coming projections whether the exchange rate has had an impact on our inflationary profile, because it’s always through price stability that we address issues like that.”

G20 COMMENTS

“The G20 communique is not disappointing.”

“What I did say at the G20 in Moscow, I urged all parties to (exercise) very, very strong verbal discipline.”

INFLATION

“Overall inflationary pressures should remain contained over the policy-relevant horizon.”

FISCAL REFORM

“We entered 2013 in a more stable financial environment than in recent years. This has been achieved through concerted reforms by governments and parliaments and decisive actions by European institutions.

“But considerable further efforts are needed to ensure that Europe continues emerging from the crisis.”

ECONOMIC OUTLOOK

“Economic weakness in the early part of 2013 is expected to be followed by a very gradual recovery later in the year. Strengthening global demand, our accommodative monetary policy stance and the  improvement in financial market confidence across euro area countries should all work their way through to spending and investment decisions and support the recovery.”

BANKS

“Another sign of improved confidence is the larger than expected early repayment by counterparties in the first of our two three-year longer-term refinancing operations settled in December 2011 and March 2012. This indicates that banks are less uncertain about their funding prospects than a year ago.”

BANK DELEVERAGING

“If they don’t do the proper deleveraging, they won’t be able to do the credit that we are really now struggling with…

That’s policy challenge No.1 – we want to see the credit numbers going up.”

IMPACT OF POLICY

“The ECB is aware of the challenges arising from a protracted period of low policy rates and ample liquidity.”

IRELAND

“This is a transaction between the Irish government and the Central Bank of Ireland. The Governing Council didn’t have to pass a judgment on this, and it will do so, however, in the context of our yearly assessment of monetary financing situations in the different members of the Euro System.”

“I don’t want to pass a judgment but .. some developments of that have been positive. Crucial in the future will be the disposal policy by the Central Bank of Ireland of these bonds.”

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