The ECB left all policy rates unchanged on Thursday while maintaining a dovish bias. Draghi's comments suggest that the option of a rate cut has probably been discussed. We continue to look for a 25bp cut in the Refi rate in December (and a stable deposit rate at zero), but risks remain skewed towards a delayed move in Q113. Below-target staff forecasts for HICP inflation in 2013 and 2014, which look likely next month, would be among the natural justifications for a rate cut.
Extract - Little progress on peripheral financial assistance programmes
On Spain, Draghi did not deviate from the official stance saying that the ECB was still ready to activate OMT although it would act (on a formal request from the Spanish government for a precautionary ESM programme) in fully independence, adding that he therefore could not provide the country with any reassurance ex ante. “The ball remains firmly in the governments' camp”, he said, in a remake of the previous two policy meetings.
On Greece, Draghi appeared to take some distance with previous statements, welcoming yesterday's vote in the Greek parliament but waiting for the Eurogroup to decide on a financial assistance programme on the basis of the Troika review and Debt Sustainability Analysis. He added that the ECB was “by and large done” on helping Greece, confirming that the Governing Council was unlikely to do more to reduce the Greek debt burden directly beyond the already agreed return of profits on past GGBs purchases.
ECB: expected credit tightening in next three months
Country-specific surveys suggest that the deterioration in both the outlook for credit supply and demand was actually broad-based across countries. In Germany, for instance, credit standards tightened both for loans to enterprises and households and were expected to deteriorate further in Q4 alongside a record decline in demand for loans from enterprises. In France, the net changes in credit standards were rather modest while in Spain credit conditions remained very negative.