MNI STATE OF PLAY: ECB Says Risks Shift to Downside

By Luke Heighton

     FRANKFURT (MNI) - The European Central Bank said risks surrounding the euro

area growth outlook have shifted from 'broadly balanced' to the downside since

December.

     ECB President Mario Draghi cited the "persistence of uncertainties related

to geopolitical factors and the threat of protectionism, vulnerabilities in

emerging markets and financial market volatility" for the change in the risk

assessment, which was agreed unanimously by the Governing Council.

     Here are key points from the press conference in Frankfurt, after the ECB

left rates unchanged:

     --The ECB still expects key interest rates to remain unchanged "at least

through the summer of 2019," in conjunction with non-standard monetary policy

measures, for as long as necessary to ensure its medium-term inflation objective

of below but close to 2%.

     --Incoming data "has continued to be weaker than expected on account of

softer external demand and some country and sector-specific factors," in

addition to geopolitical factors and the threat of protectionism. Again, the

Council was unanimous in its assessment of the reasons behind the eurozone's

slowing momentum.

     --Supportive financing conditions (despite some evidence of tightening in

Italy), favorable labor market dynamics and rising wage growth (which Draghi)

admitted had yet to pass through into rising inflation), would continue to

underpin euro area expansion.

     - LTROs and TLTROs "have been very useful and very effective in restoring

transmission of monetary policy in the euro area," Draghi said. But he would not

be drawn on their possible future implementation,despite "several" members

mentioning the issue. Nor would he be drawn on the introduction of a tiered or

limited deposit rate.

     --Draghi said the chances of one or both of Germany and Italy entering a

recession was low, with the General Council unanimously of the view that it was

unlikely. Asked about upside risks and whether we might yet see an interest rate

hike before 2020, he said part of the Governing Council remains more convinced

of a more "benign" outcome to the present situation than others.

     --On the issue of negative rates and bank profitability, Draghi said the

ECB would "continue to monitor the profitability of the banking sector very

closely ... Banks are stronger now than before the crisis and a strong banking

sector is key for making sure that a downturn does not turn into a recession."

--MNI Frankfurt Bureau; +49-69-720-146; email: luke.heighton@marketnews.com

--MNI London Bureau; +44 203 865 3829; email: jason.webb@marketnews.com

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