Friday, September 7, 2012

Darghi Says Nothing New

There has been a lot of anticipation about what European Central Bank president Mario Darghi would say today in the press conference. His statement is out and there is nothing new there. It is purely a clarification of the bond-buying plan declared on Aug. 2.

Here’s what he said in his statement on Aug. 2:

“The Governing Council, within its mandate to maintain price stability over the medium term and in observance of its independence in determining monetary policy, may undertake outright open market operations of a size adequate to reach its objective … Over the coming weeks, we will design the appropriate modalities for such policy measures.”

The complete statement along with the transcript of the press conference on the ECB website provide a fair indication about the modalities, too!

All that he has done today is provide clarification around the modalities and technicalities of the open-market operations already declared. There is absolutely nothing new there.

Here are some key points (reformatted) from the ECB press release titled Technical Features of Outright Monetary Transactions.

  • The Outright Monetary Transaction (OMT) to be undertaken under the overall frame of EFSF/ESM. (Obviously, and already indicated in the Aug. 2 press conference.)
  • The OMT would be preceded by strict conditionalities and a monitoring mechanism, with the IMF being involved. (Nothing new; already happening for Greece and mentioned in the Aug. 2 press conference, too.)
  • Will buy bonds between one-year and three-year maturity. (Nothing new; already indicated in his Aug. 2 press conference.)
  • Purchases will be fully sterilized, meaning the overall impact on the money supply will be neutral. (That’s obvious. The bond-buying program is not to inject liquidity, but to stabilize the bond markets.)
  • The OMT bonds would rank the same (pari passu) with other private creditors. (Obviously, because if they have to take other creditors’ approval for a higher priority, the bond buying will remain on paper as other creditors would be unlikely to agree.)

All the hype around today’s press conference was overdone. In fact, there was really no need for a press conference if the only agenda was to release a few points around the modalities of the OMT transactions.


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