PARIS (MNI) – Financial market analysts who listened to ECB
President Mario Draghi on Thursday mostly agreed that the central bank
had left the door open to the possibility of more interest rate cuts,
but they differed sharply on the timing of any such cuts and whether
they would materialize at all.

Some predicted that the “tentative” economic stabilization observed
by Draghi would be reversed by more bad news emanating both from the
economy and the Eurozone debt crisis. They predicted further interest
rate reductions as soon as March, possibly accompanied by more
aggressive intervention in sovereign bond markets. Others saw ECB rates
remaining on hold for many months, even through the end of the year.

Excerpts of analysts’ comments are below:

JOERG KRAEMER, Commerzbank: “It is no surprise that the ECB
refrained from announcing new measures today. But the EFSF bailout fund
still lacks firepower…We see a probability of above 50% that the
Bundesbank in the end agrees to give loans to the IMF although in our
view this would be an indirect financing of state expenditures by
printing money. If the sovereign debt crisis were nevertheless
threaten[ing] to escalate the ECB would likely turn to aggressive
purchases of peripheral bonds. It could justify this by fears of a
credit crunch.”

CARSTEN BRZESKI, ING: “Even if ECB president Draghi pointed to the
first tentative signs of stabilisation at a low level, the door for
further rate cuts was opened. Contrary to the last two hiking cycles,
the ECB has never used code words to pre-announce rate cuts. However, it
might be more than pure coincidence that the only really new phrase in
the first paragraph of the introductory statement “a very thorough
analysis of all incoming data and developments over the period ahead is
warranted” was exactly the same sentence used by his predecessor Trichet
at the October meeting. And there was more. Draghi declined to label the
1% level a floor for ECB rates and also stressed that the ECB stood
ready to act. All in all, still high inflation and tentative signs of a
stopping of the growth deterioration have motivated the ECB’s current
wait-and-see stance. As soon as the Eurozone economy slips further, a
next rate cut looks highly probable. Further rate cuts are clearly
growth-dependent…With the main interest rate at 1% and the enormous
liquidity measures, the ECB remains ahead of the curve and still has
room to react if need be. No doubt, the ECB will not hesitate to use
it.”

MARIO GRUPPE, Norddeutsche Landesbank: “The press conference was
rather unspectacular. One could see that Draghi made every effort for an
atmosphere of normality. The interest rate decision was as expected.
Maybe it was somewhat suprising that Draghi said that the decision was
made unanimously. Draghi did not signal any further interest rate cuts.
Thus, we expect interest rates to remain at the current level over the
coming months — naturally under the pre-condition that nothing
unexpected happens, like for example a further worsening of the debt
crisis.”

RALF UMLAUF, Helaba: “The ECB has met our expectations. It has not
lowered interest rates or agreed on further liquidity measures. It looks
like Mario Draghi has become somewhat more confident on the economic
outlook for Europe. Thus, we stick to our assessment that there won’t be
any further interest rate cuts in the foreseeable future. However,
Draghi has also made clear that the ECB keeps its door open to react
with conventional or unconventional measures if the Eurozone debt crisis
should worsen again. But that is not our main scenario.”

THOMAS AMEND, HSBC Trinkaus: “There wasn’t anything substantially
new in today’s press conference. Draghi’s comments suggest that the
we’ll likely see no further interest rate cut over the coming months.
Then one will have to eye economic developments very carefully. Recently
we’ve seen some stabilisation tendencies in the sentiment indicators. If
this is confirmed, the ECB will likely refrain from cutting interest
rates further. Otherwise, it is quite realistic that the ECB might cut
interest rates again in two steps of 25 basis points each.”

FREDERIK DUCROZET, Natixis: “No big surprise, no major announcement
in our view. The ECB has confirmed an easing bias. But, [the ECB] is
possibly more in a data-dependent mode than one month ago for all the
various reasons: PMIs, three-year LTRO, developments on the policy side
in Greece. So, for all those reasons, we now look for the ECB to cut
rates in March only by 25 basis points most likely, which compares to
our previous forecast of a 50-point cut during the first quarter. Our
view is that they cut in March and they leave the rates unchanged at
this level for the remainder of this year. In that case, we will still
see the risk of another rate cut during the second quarter, but for this
to happen we will need to see a series of either weak, very weak
activity data or something unexpected on the Greek front in particular.”

JAMES SHUGG, Westpac: “The ECB still have concerns about the
economy, but there hasn’t been enough fresh bad news for them to want to
act just yet. We still think that they will cut rates again. We think
that they will continue to expand their balance sheet, possibly more
directly in support of government bond markets. But I think that is an
issue for a couple of months down the track rather than imminent. So, I
think that this is a pause on the road towards further easing by the
ECB. [March] is when we see the next cut in rates. We see the next
couple of months as being a period of calm, perhaps followed by a
re-intensification of concerns that will prompt the ECB to take further
action in March.”

HOWARD ARCHER, IHS: “The ECB seems to [be] leaving the door very
much open to further interest rate cuts, even though they are now at a
record low level of 1.0%, and significantly did not move below this
level even at the height of the 2008/9 recession. When asked if the ECB
will keep interest rates unchanged at 1% at their February meeting, Mr.
Draghi referred to his predecessor Jean-Claude Trichet’s mantra that the
ECB never pre-commits on its policy decisions and commented that ‘the
ECB stands ready to act if needed’…Our suspicion is that the Eurozone
will suffer further appreciable economic weakness over the early months
of 2012 at least and we expect the ECB to respond by cutting interest
rates further. And we anticipate that mounting evidence of retreating
inflationary pressures will give the ECB increasing scope to act.

BENJAMIN REITZES, Bank of Montreal: “[Draghi] didn’t have much new
to say, but I guess he did not rule out further cuts either. One
interesting phrase that I don’t think I’ve heard before from the ECB was
that ‘a very thorough analysis of all incoming data and developments in
the period ahead is warranted.’ That could suggest that we could see
further rate cuts below 1%. We are actually expecting them to cut rates
next month. We do think things will weaken and the data will show that
over the next few weeks.”

MARCO VALLI, UniCredit: “The ECB sees tentative signs of
stabilization in business surveys (not yet hard data) at low levels, but
still envisages ‘substantial’ downside risks to the growth outlook and
high uncertainty. As risks to mid-term price stability remain broadly
balanced, this indicates that the central bank retains an easing bias.
When asked whether the stabilization in some activity indicators could
imply no more rate cuts, Draghi was very careful to sound as
non-committal as possible, stressing that monetary policy will have to
stay accommodative and the central bank remains ready to act…If our
view that Eurozone growth will bottom out in 4Q11 is correct, the refi
rate should remain at 1% throughout this year. However, we see several
downside risks to our rate call, including a resurfacing of severe
market tensions, a renewed leg down in growth indicators, and a
sharper-than-expected deterioration of the lending cycle.”

KEN WATTRET, BNP Paribas: “On the possible timing of another rate
cut, our forecast on the back of the cut in December was for another 25
bps off the refi rate by February’s meeting at the latest. The tone of
today’s press conference and the recent data flow suggest that the risk
is for a later move. With the sense of alarm having calmed since late
last year, the ECB may feel more able to conserve its limited
conventional ammunition. If so, the next focus will be March’s review of
the staff projections. However, there is considerable uncertainty over
how events will pan out, with the numerous event risks for the Eurozone
meaning that a rate cut cannot be definitively ruled out at any point.
Such event risks include developments in Greece (we thought Mr Draghi’s
comments on Greece sounded more critical today than before) and fiscal
policy and political events across the periphery of the Eurozone more
generally.”

–Paris newsroom, +331-42-71-55-40; paris@marketnews.com

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