ECB's Draghi says no one talking about recession, QE restart considered

Yet the euro rose 0.71% to 1.12997 as of 1649 BST amid 'market chatter' that the ECB had been expected to be even more 'dovish'.

Following their meeting on Thursday, policymakers in Frankfurt extended their so-called 'forward guidance' for six months, saying that official short-term interest rates would remain at their present level "at least" through the front half of 2020.

During his post-meeting press conference, ECB chief Mario Draghi emphasised the role of the "more prolonged" than expected uncertainty around trade protectionism as the main trigger behind the Governing Council's decision to shift its forward guidance and said the risks to the outlook remained tilted to the downside.

In his opinion, markets "might see a much broader phenomena, where the multilateral order that we have lived in since World War II" is disappearing.

"And then of course the uncertainty about Brexit negotiations, the uncertainty of vulnerabilities of certain emerging-market countries, which are important," he went on to say.

Draghi also said that various options for more accommodative policy were considered by the council in the context of contingency planning, including restarting quantitative easing or rate cuts.

Should certain contingencies arise, recourse to fiscal policy would need to be considered, he added.

However, he bluntly stated that no one was talking about deflation or a recession, although as an aside he noted that financial conditions in the euro area had tightened slightly since the last GC meeting.

"There is no probability of deflation, a very low probability of recession, and there is no threat of de-anchoring inflation expectations," he said.

"Underlying inflation was generally muted," Draghi added, but was still expected to rise over the medium-term, helped in particular by stronger wage growth.

In their latest set of quarterly projections, which were also published on Thursday, ECB staff had only revised their GDP forecasts for 2019-21 slightly lower, trimming their projections for 2020 down by two tenths of a percentage point to 1.4% and that for 2021 by one tenth, also to 1.4%.

Similarly, ECB staff continued to see CPI rising at a year-on-year pace of 1.6% in 2021, with small offsetting revisions to their forecasts for 2019 and 2020.

Indeed, the conditions outlined in the ECB's third programme of targeted long-term operations, outlined earlier, were less generous than expected, according to analysts.

"The ECB discussed easing, but it is not willing to guide even to possibility of a Q4 cut. This makes little sense, but we have no doubt that the central bank will adjust accordingly in H2 if need be," said Pantheon Macroeconomics's chief Eurozone economist Claus Vistesen.

"For now, though, our base case remains that the deposit rate will finish the year at -0.4%."

-- More to follow --