ECB poised to raise funding for Greek financial institutions as euro falls to twelve-calendar year lower
European Central Bank raises emergency funding cap for Greece by €500m, as the central bank reveals details of its €1.1 trillion QE blitz 
ECB will buy €60bn-a-month for an unlimited period of time to lift inflation
Photo: Getty
• ECB bond buying to begin on March 9
• Can Greece avoid going bankrupt in March?
• Euro falls to 12-year low against the dollar
• ECB raises Greek ELA funding ceiling by €500m
• Bank raises growth forcecast and expects 1.8pc inflation in 2017
18.30 The QE effect, courtesy of Credit Agricole (the orange bars represent the growth boost from the forthcoming stimulus)
18.20 Eurozone QE will come into the world on March 9. That date, as astutely observed by the Telegraph’s group business editor Ben Wright, makes it a Pisces. Cue liquidity gags…
@dumav So QE will be a Pisces! Liquidity!
— Ben Wright (@_BenWright_) March 5, 2015
18.15 Analysts at Soc Gen have been wondering what course of action the ECB could take should inflation continue to undershoot expectations in 18 months time.
So far, September 2016 has been touted as the taper date for QE, but Soc Gen think the ECB may have to venture into buying lower-rated government debt and even corporate debt if growth and prices continue to disappoint.
Here are the potential options they lay out:
1) review the 25pc ownership limit, which will be difficult in light of the ECB’s commitments to avoid obstructing orderly debt restructurings. One way would be to review the threshold only for the highest rated debt;
2) venturing into additional assets to buy (corporate debt, equity, foreign assets); and
3) extending liquidity provision (for instance the TLTROs).
18.10 Former Chancellor of the Exchequer Norman Lamont has been having his say on events in Europe. The former Tory MP thinks the long term effects of QE could pose a danger to the UK economy:
“[QE] drives up asset prices which help the better off. They shove up stock markets. It’s very artificial to have very very low inflation rates and I fear prices become terribly distorted – triggering a search for higher yielding shares – all sought as you can not get returns on [low ] interest rates.
People now buy negative bonds on hope it may go even lower in hope to get a small capital gain.
I think this is crazy. And at some point it has to be all unwound and that will be a rickety process and some things have been mispriced. That is a risk to the global economy.”
17.50 European markets have shut for the day and have hit fresh highs today on expectation of next week’s stimulus. Here’s how we finished the day
17.30 The euro briefly fell below $ 1.10 but has now regained some ground.
16.16 The ECB will be buying bonds from the secondary market. This is to avoid any direct financing of governments. So who are the sellers going to be?
The ECB has put out the following list of international institutions that it will buy the debt of:
• Council of Europe Development Bank
• European Atomic Energy Community
• European Financial Stability Facility
• European Stability Mechanism
• European Investment Bank
• European Union
• Nordic Investment Bank
• Caisse d’amortissement de la dette sociale (CADES)
• Union Nationale Interprofessionnelle pour l’Emploi dans l’Industrie et le Commerce (UNEDIC)
• Instituto de Credito Oficial
• Kreditanstalt fuer Wiederaufbau
• Landeskreditbank Baden-Württemberg Foerderbank
• Landwirtschaftliche Rentenbank
• NRW.Bank
16.00 Mario Draghi mentioned today that a widely-watched gauge of market inflation expectations has been ticking up in the run up to today’s news.
Here’s what he’s on about: the 5-year foward interest rate swap is now hitting 1.7pc – that’s just shy of the 2pc target rate.
15.55 The disctinctly positive outlook from the ECB this afternoon suggests there may be no need for the central bank to continue its bond-buying after the September 2016 cut off date, says Howard Archer at IHS Global.
With the ECB now markedly more upbeat on Eurozone growth prospects and consumer price inflation seen being back in line with its target rate by 2017, it may seem questionable whether the ECB will feel that it needs to continue its QE program through to the currently planned finish date of September 2016. Let alone possibly extend it thereafter.
Significantly though, the ECB indicated that its growth and inflation forecasts are based on the expected full implementation of the QE program, while ECB President Mario Draghi also commented that the ECB “see no reason to think, plan, or act, in any different way than what we planned.” The ECB also stressed that the uncertainty surrounding the forecasts increased the further out that they went.
15.45 Global equities are mostly in the green today, bouyed by the news that the ECB will begin its first purchases on March 9 and leave them potentially open-ended
15.16
#ECB : flexibility for NCBs could open the door to corporate bond buys
— Nick Kounis (@nickkounis) March 5, 2015
15.15 The ECB is drunk on happiness after today’s announcement, says Carsten Brzeski of ING, who thinks the “euphoria is almost a bit overdone”.
He also points out that the limit on bond-buying below a -0.2pc threshold rules out the purchase of German 2-year paper.
Here’s Carsten in full:
The ECB’s macro-economic assessment sounded as if the ECB is a bit inebriated by its own QE announcement. It was the most positive and optimistic assessment in a long while. Words like “broadening” and “strengthening” had not been used in combination with the Eurozone recovery for quite a while.
The bottom line of Draghi’s answers was that the ECB would only buy government bonds rated lower than investment grade if the countries are in a bailout programme and the programme is not in a review period. Moreover, the ECB could not buy more than 33% of a single issuer. For Greece, all of this means that the ECB could at the earliest start purchasing Greek bonds only in June or July, if and when Greece has reimbursed the bond expiring in June which the ECB had (partly) purchased under the old SMP programme.
15.08
ECB says won’t buy below deposit facility rate (currently, minus 0.2 per cent) but could of course cut that rate…
— Ralph Atkins (@RalphAtkins) March 5, 2015
15.05 And just in case you missed it, we have a new eurozone acronym. Today’s QE programme will officially be known as the “Public sector purchase programme” or PSPP for short.
Snazzy.
15.03 The ECB’s staff projections sees the exchange rate settling at around $ 1.13-14. That’s pretty optimistic judging from the extent of today’s collapse. We’re currently at $ 1.102 – a 12-year low for the single currency.
14.50 Mario Draghi repeated the ECB was prohibited to print money to buy government bonds when asked about Greece.
That raised a few heckles on the Twittersphere given that QE seems to be doing precisely that.
But in its Q&A released after today’s press conference, the ECB reiterated that it is not violating Article 23 of the Maastricht Treaty as it will be buying bonds on the secondary market, rather than directly from governments.
In their words:
There will be no primary market purchases under the PSPP, regardless of the type of security, as such purchases are not allowed under Article 123 of the Treaty on the Functioning of the European Union
14.48 The euro’s plummet has continued. Now hit $ 1.1024
#Euro hits another all time low, now at 1.10$ : http://t.co/H6OZhq3NS2
— Theo Guns (@theo_guns) March 5, 2015
14.45
How the latest #ECB staff projections compare to other forecasts (spoiler: ECB is a tad optimistic):
— Christian Odendahl (@COdendahl) March 5, 2015
14.42 The ECB’s economic forecasts are also out today. Here’s what the Bank expects from growth (which has been revised up) and inflation (which is expected to hit 1.8pc) in 2017
14.37 Some more details: if there are not enough bonds to go around for the ECB, the bank forsees “substitute purchases” of other types of assets.
There is also no fixed duration for the programme , suggesting the September 2016 cut off date will not apply should inflation expectations remain unanchored.
14.35 The ECB has released those details of its QE programme. As Mr Draghi said in his press conference today, the bank will be buying bonds with a negative yield of no more than -0.2pc (which is the ECB’s current deposit rate).
14.29 And we’re done with the press conference. Which even without the Greek heckling journalist, was very very strange.
The #ECB is in a tough spot. Mock snark aside, they’ve saved the system a number of times now and deserve recognition for that
— Mark Dow (@mark_dow) March 5, 2015
14.29 Last question: Greece and Cyprus are the only two countries not taking part in QE. How long will it be until Cyrpus takes part?
The Cypriot central bank governor says that the obstacles that exist for the country’s review should be lifted. “I hope that will happen soon.”
14.27 “Rules-based institution” is the ECB mantra of the day…
14.25
The ECB presser is better than House of Cards. Netflix should stream it
— zerohedge (@zerohedge) March 5, 2015
14.24 Cyprus’ central bank governor says the country has taken neccessary but painful decision after its banking crisis.
She said “capital controls were inevitable” and should have been put in place earlier. The government now expects the controls to be lifted “soon” and before the first quarter of the year comes to a close.
14.22
“The last thing you can say is that the ECB is not supporting Greece” says Draghi. It’s certainly the last thing I said.
— Berlaymonster (@Berlaymonster) March 5, 2015
14.20 Mr Draghi says core inflation in the eurozone is still low, but inflation expectations suggest that markets are pricing in a rise.
“Our monetary policy decisions have stopped a declne in inflation expectations that had started at the end of July last year.”
14.16 Are Greek banks safe? And is Mr Draghi affected by the political decisions of the Eurogroup?
Mr Draghi repeats the ECB has lent 68pc of Greece’s GDP to the country.
Flexibility will return to Greece within “the contract the government the Greek government defines with the other members” says Mr Draghi.
14.14 Q1:Should Germany use its low bond yields to help transmission of monetary policy
“I don’t want to pass judgement on specific countries” says Mr Draghi.
Q2:Is the Greek bail-out extension not enough to reinstate the waiver?
We have a rule which says we can’t accept bonds below a certain threshold, explains Mr Draghi, but the ECB decided that if some conditions are in place, then the bank can expect the bonds will be rated above this level.
“We assessed these conditions were not in place in mid-February. At that point we had not choice.”
“We stand ready to reinstate as soon as we can make a positive assessment about the liklihood of a successful completion of the review.”
14.09 All this has led to the euro falling to a fresh 11-year low
#Euro drops to $ 1.1007, fresh 11year low on Draghi comments.
— Holger Zschaepitz (@Schuldensuehner) March 5, 2015
14.08
Bad news for Greece. Draghi just said that the waiver would only be reinstalled in June, at the earliest.
— Carsten Brzeski (@carstenbrzeski) March 5, 2015
14.05 Mr Draghi confirms the ECB has raised its ELA limit by 500m euros for Greek banks.
“ELA is a decision of the national central bank of Greece, to which the governing council could object with a strong majority if some conditions are not in place.
“ELA can only be given to solvent banks with adequate collateral” says Mr Draghi. “A lot has been done by Greece to strengthen its banking system.”
“It is absolutely essential that this solvency be maintained. That is the precondition for ELA.”
“The most important thing we can do today is preseve the solvency of the Greek banking system. The ECB has also asked the Eurogroup that the 10bn recapitalisation be readily available in case of any negative contingency.”
14.02 There is a heckler in the room…he sounds angry (no translation provided).
Fight. Fight. Fight
— zerohedge (@zerohedge) March 5, 2015
13.55 Q: Under which conditions will the ECB put back the waiver on Greek banks?
Mr Draghi says the ECB has lent 100bn euros to Greece, and doubled its lending in a month and a half. This lending represented 60pc of Greek GDP and is the highest in euroarea. “The ECB is the central bank of Greece,” he adds.
“The ECB is the first to wish to restart lending to the Greek economy providing the conditions are in place. The process which suggests a successful completion of the review be put in place fast. That is the condition and we will welcome such developments.”
Q2 Will the European banking system buy Greek bonds?
The ECB cannot buy Greek bonds, and the programme cannot buy private bonds. The purchases are not supposed to take place for countries which are under a programme under a review period – this also excludes Cyrprus, says Mr Draghi.
“We can only buy investment grade bonds and Greek bonds are below the threshold.”
“We are ready to reinstate the waiver” adds Mr Draghi.
The ECB also has a 33pc per issue limit on purchases. This has been reached in the case of Greece, says Mr Draghi. But as soon as the bonds are paid back in June, and the waiver is back in place, the ECB will buy Greek bonds under the new QE programme.
13.53
Fantastic answers by Draghi pointing to inconsistency of critics towards QE, either too small or too big.
— Frederik Ducrozet (@fwred) March 5, 2015
13.50
Q1.Bond yields have turned negative. Is there a limit to how low the yields have to be for the ECB to purchase them?
A: our monetary policy has “worked” says Mr Draghi. The market reaction to the announcement has been “effective and positive.”
On the worry there won’t be enough bonds to buy, Mr Dragh says that half of euro bonds are held outside the eurozone. We will go as negative as the deposit rate adds Mr Draghi – this is currently -0.2pc.
Q2. Is there a danger QE will widen the wedge between the rich and the poor.
There has been a decrease in lending rates after QE, says Mr Draghi and rates have converged. The benefits from our stance “is being passed in the form of lower borrowing costs to households and non-financial companies.”
13.47
RT @fwred : Reference to Art.123 means ECB still against extending the cap on #Greece T-bills as a solution 2 cover short-term funding needs
— Efthimia Efthimiou (@EfiEfthimiou) March 5, 2015
Q 1.What does ‘sustained adjustment’ in inflation mean?
2. The Greeks want to issue more T-bills. Will the bank raise the ceiling and under what conditions
Answer: We see no reason to think or plan in any different way from what we have already planned our purchases. The statement is what it is.
Answer 2: The ECB is not a political institution. It is a rule-based institution says Mr Draghi. He repeats that the ECB is banned from monetary financing of eurozone governments. “We are prohibited from doing that.”
13.46 Question time begins…
Draghi: Important to implement effectively the macroeconomic imbalance procedure to address excessive imbalances in individual Member States
— ECB (@ecb) March 5, 2015
13.45 To reap the full benefits of monetary policy, other parts of policymaking should also pull their weight, says Mr Draghi.
To increase investment and employment across the bloc “it is crucial that structural reforms be implemented swiftly and credibly” to boost growth and income expectations, adds Mr Draghi.
13.45 Demand for loans to small businesses and households in Europe remains “subdued” says Mr Draghi. He says QE should stimulate this lending to the real economy.
He says conditions in Europe confirm the “appropriateness” of the ECB’s measures to bring inflation back to near 2pc.
13.40
CHART: Here’s how the new #ECB 2015 Macroeconomic Projections look. Inflation revised down, GDP growth up #upswing
— Maxime Sbaihi (@MxSba) March 5, 2015
13.38 Draghi says inflation will remain “very low” in the coming months but will start to pick up later in 2015.
The ECB forecasts inflation will reach 1.8pc in 2017 (the end of its forecast period).
The euro is surging as Mario Draghi speaks
— Bloomberg Markets (@markets) March 5, 2015
13.36 Mr Draghi says the low price of oil should help household spending and company profits. He says QE will lead to an increase in domestic demand.
The ECB has raised its GDP forecast to 1.5pc from 1pc in 2015 it predicted in December.
#ECB ups #Eurozone GDP growth forecasts. Sees 2015 GDP at 1.5% vs 1.0% seen in Dec, See 2016 GDP at 1.9% vs 1.5% prev seen
— Holger Zschaepitz (@Schuldensuehner) March 5, 2015
13.35 Mr Draghi says he expects QE to contribute to a return of inflation to a level below, but close, to 2pc.
Draghi: ECB expects economic recovery to gradually broaden and strengthen
— ECB (@ecb) March 5, 2015
13.30 The conferece has started. Mr Draghi says the ECB will begin bond-buying on March 9.
• Combined purchases will amount to 60bn a month until Sept 2016 or until there is a sustained adjustment below or near 2pc.
• More information will be released at 2.30pm by the ECB
13.29 Draghi’s in the house. Tie colour: pinkish.
13.26 The ECB camera has panned over to a charming oak-panelled room full of eager hacks. Which means we’re about to get started very shortly.
WATCH HERE.
13.25 A reminder that whatever we learn today, Greece will not be part of the ECB’s immediate QE plans
Even if Varoufakis was the best behaved and dressed pupil in class #Greece is not part of QE before July because of this 33% issuer limit
— Yiannis Mouzakis (@YiannisMouzakis) March 5, 2015
13.15 Mario Draghi is expected to take a tough line with Greece today, according to Jennifer McKeown from Capital Economics.
The Greeks have asked for interest profits accrued by the ECB to be returned early to Athens to help the government’s cash crunch.
Greece has also requested a raising in the short-term T-bill issuance limit set by the ECB. But the central bank is unlikely to play ball on either before Greece gets closer to completing its reform pledges.
Here’s Capital Economics:
Mr Draghi is likely to state again that, as the profits have already been given to national central banks, the decision on when to reimburse them lies with euro-zone governments.
But as a member of the Troika, the ECB will play a role in signing off any disbursements. And Mr Draghi is likely to maintain the tough tone taken so far about required reforms and austerity measures.
He might also hint that the ECB is reluctant to allow the Bank of Greece to provide liquidity to the Greek banking sector indefinitely, as indicated by the latest decision to raise the limit only marginally. This would all add to the risks of a disorderly default and euro-zone exit.
13.05 The press conference should get going in about 20 minutees.
You can watch live here
12.55 Draghi on tour
Press conference venue looking sunnier than usual.
— Michael Steen (@michaelsteen) March 5, 2015
12.45 ECB HOLDS RATES
As expected, no interest rate change from the bank. We’ll be getting all the juicy stuff about QE and Greece at the press conference in 45 mins.
The base rate remains at 0.05pc, the deposit rate at -0.20pc, and the marginal lending facility at 0.3pc.
12.35 Here’s why Greek banks need help. Deposit flight has accelerated since Syriza were elected in late January, and have led to deposits reaching a 10-year low. JP Morgan estimate €64m left Greek lenders in the last week alone.
Greek deposits down 12.8 bln in Jan, mostly due to high wealth customers & corporates http://t.co/ughBClYrmh #Greece
— Nick Malkoutzis (@NickMalkoutzis) February 26, 2015
12.20 A reminder that the ECB will be putting out a statement on its interest rate decision at 12.45. Most analysts expect no change from the current 0.05pc base rate.
The bank will also be putting out its latest economic forecasts for the bloc. Inflation is expected to fall to close to zero in 2015, but growth should be revised up as falling oil prices help boost consumer spending in the eurozone.
12.10
#ECB GovCouncil raises #Greece ‘s ELA cap marginally to €68.8bn from €68.3bn. Same restrictions apply.
— Yannis Koutsomitis (@YanniKouts) March 5, 2015
12.05 In other central bank news, the Bank of England has decided to maintain interest rates at 0.5pc. That’s officially six-years of record low base rates for the UK, since they were first cut back in March 2009.
The iPad, Justin Bieber and Prince George have all been welcomed into the world since rates last moved, says Jeremy Cook at World First.
Here’s a chart from RBS on how wrong we’ve been getting it on rate rises
Market expectations for Bank Rate have changed a lot since 2009 & they have consistently been well wide of the mark.
— RBS Economics (@RBS_Economics) March 5, 2015
12.00 In January, the ECB announced it would be purchasing €60bn-a-month in private and public sector assets for at least 18 months. But, are there enough bonds out there for them to buy?
That’s the question exercising Marshal Gittler from IronFX. His thoughts ahead of today’s meeting:
• Whom do they expect to buy the bonds from? About half of the Eurozone sovereign bond markets are held by European banks and financial institutions. They are not likely to sell, for the simple reason that they will have a hard time replacing the assets with anything offering a similar yield. In contrast, an estimated 36pc of the bonds are held by foreigners, who may be more willing to take profits and invest the proceeds elsewhere (such as in Treasuries or Gilts). In that case, QE could be distinctly EUR-negative.
• What happens if they can’t find enough bonds to buy? Will they be willing for example to buy equities instead, as the Bank of Japan does?
11.45 The ECB are on tour. Today’s meeting will be held in Nicosia, Cyrpus – where two years ago the country’s banks were the subject of a bail-out from European creditors. Protests have already been taking place outside the meeting but ECB president has been heaping praise on the Cypriots in the wake of their financial meltdown in 2013.
Speaking last night, Mr Draghi said Cryprus’ reform programme “commanded respect from the rest of Europe.”
Some quotes in full:
“It is safe to say that he programme has been yielding very concrete results, in fact even better results that were forecasted two years ago.”
The restructuring and recapitalisation of the banking sector has led to a significant improvement in the health of the financial system…. Indeed it is remarkable that Cyprus is on track to exit the excessive deficit procedure two years ahead of the 2016 deadline.
Protests last night at the European Central Bank Governing Council meeting in Nicosia, Cyprus.
— Dimitri Lascaris (@dimitrilascaris) March 5, 2015
Governing Council gathers in Nicosia
— ECB (@ecb) March 5, 2015
11.35 On the question of national central bank bond-buying, Goldman Sachs reckons today’s announcement is likely to get us closer to 19 distinct QE programmes all running at the same time.
GS: “de facto there will be 20 QE programs (19 countries plus the ECB) formally running simultaneously”
— Katie Martin (@katie_martin_FX) March 5, 2015
11.30 Good news for the ECB. A closely-watched gauge of inflation expectations has hit a five-year high in anticipation of today’s meeting. Investors have also been bouyed by some robust economic numbers coming out of the bloc this week, raising hopes of further growth and higher consumer prices.
Why #ECB QE when deflation risk has lowered that much. Inflation expectations – measured by 5y5y swap – jump to 1.76%
— Holger Zschaepitz (@Schuldensuehner) March 5, 2015
11.20 So what are expecting from Mario Draghi later today? Here’s a rundown:
• Duration of the programme: the ECB said in January the bond-buying would continue until September 2016, or at least until the bank saw a “sustained adjustment in the path of inflation” towards its 2pc target
• Risk-sharing: details on how bond purchases will work through national central banks will work and who takes on the risk of the assets – Frankfurt or member states?
• Greece’s collateral waiver: any move to reinstate the waiver on Greek bonds as collateral for cheap loans would be a big deal today.
So far, the ECB has maintained it will restart its ordinary lending operations once it thinks Greece is making enough progress on austerity reforms.
• Emergency funds for Greece: Greek banks are being kept alive through emergency liquidity help from the ECB. But the country’s lenders have been hitting the limits on the ELA ceiling as deposit flight has accelerated in recent weeks.
• The colour of Mario Draghi’s tie: always a good early indicator of the Bank’s dovish/hawkish sentiments
11.00 Hello and welcome to today’s live coverage of the ECB’s monthly meeting being held in Cyprus today.
The bank is poised to reveal details of its €1.1 trillion QE package, as well as likely answering questions about the Greece’s funding crisis.
According to reports in Greece, the ECB has moved to raise its ELA ceiling for Greek banks by €500m. No confirmation from the ECB itself yet, but the euro has fallen to its lowest level against the dollar in more than 11 years.
#ECB raises #ELA ceiling by €500mln. Greek banks can now access €68.8bn of emergency liquidity, BBG reports citing website Capital.gr.
— Holger Zschaepitz (@Schuldensuehner) March 5, 2015
The single currency has dropped to $ 1.1055, its lowest level against the US currency since September 2003.
Kit Juckes, of Societe Generale, said: “Today’s ECB meeting in Cyprus should be accompanied by a few more details about the bond-buying programme, but few fireworks.
“Re-affirmation of the commitment to buy €60bn per month, and some clarity on the logistics will be important to the bond market, which has gone a long way since the original announcement.”