Mario Draghi is out with his post-ECB report trying to explain the “no rate cut” action this morning — the European Central Bank left rates on hold. We signaled that Draghi may be preferring to conduct bond-buying operations that would be sort of like a TARP, TALF and Operation Twist rolled into one and mutated.
Draghi’s first real comment is that the euro is “irreversible.” He also maintains that the monetary expansion remains subdued but noted that inflation should continue to decline throughout 2012 and that the inflation expectations remain anchored. He also maintained that further intensification of market tension poses downside risks.
Draghi also pointed out that there are exceptionally high risk premiums in several government bond prices. What is helping is that Draghi said that governments must stand ready to activate EFSF/ESM in the bond market (bond buying) and that the ECB may undertake outright open market operations within its mandate. The government council also should consider taking other nonstandard measures.
JON C. OGG
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