DRAGHI SPEAKS

Today was to be an important day for the European Central Bank and what President Mario Draghi would do and say about monetary policy. Here a brief note from Business Insider:

• The euro is up 0.8% at 1.1385 after the European Central Bank left both its key interest rate and deposit rate unchanged at 0% and -0.40%, respectively. The inaction was expected after the ECB cut rates and increased its asset purchases at the March meeting. 

In the Q&A session here are some of his responses:

On inflation, Draghi says inflation rates could slip back into negative territory in coming months but that the ECB expects inflation to pick up in the second half and futher recover in 2017 and 2018. That’s in line with the ECB staff forecasts.

Draghi is asked if he worries German criticism of the ECB’s policies could have a negative impact on investment and business activity.

Draghi says a “polite, lively debate” helps the ECB better explain its policies. But he says criticisms “of a certain type” could be seen “endangering the independence of the ECB.”

That could lead to delayed investment and risk taking, he says, but the ECB will continue mplementing policies it deems appropriate. The only impact will be to delay the achievement of the ECB’s objectives and to require even more policy expansion, he says.

On a related question about Britain’s upcoming referendum on whether to remain in the European Union, Draghi says Brexit concerns have already produced significant market consequences.

Draghi is asked about the prospect of “helicopter money”–a program in which a central bank injects money directly into the economy.

Draghi expresses surprise that his response to an earlier question about the extreme monetary policy measure has drawn so much attention. “The bottom line is that we have never discussed it,” he says.

But what about pensioners? Draghi is asked what he would say to German citizens worried about the fate of their pensions given ultralow and negative interest rates.

Draghi says there’s no doubt pensions and insurance firms are affected, but urges them not to blame everything wrong in the sector on low rates.

He also notes that they’ve also reaped the benefit of large captial gains on their bond holdings as a result of the ECB’s asset-buying program. Also, it’s not just a function of the ECB, he says, noting the U.S. long had rates near zero before the ECB.

Low interest rates are a “symptom of low growth and low inflation, it’s not the monetary policy consequence,” Draghi says. “If we want to return to higher interest rates,” higher growth and inflation is required, he says. Getting back to growth requires the current monetary policy stance.

At the same time, its worth noting real rates–interest rates minus inflation–are higher than they were 20 or 30 years ago, but that’s difficult to explain to savers, Draghi says, telling he questioner, “perhaps that’s your job.”

As you can see his responses were laced with the usual bureaucratic speak. Nobody in their right mind among average consumers cares about inflation adjusted interest rates. That's about as far form the real world as are these bureaucrats. It's a condescending remark, the same ploy used against the price of gold not being higher than it was in 1980.

His comment about pension and insurance funds is another dodge. A recent report noted there are something like 153 underfunded country pension funds today. Did the same savers who it would be sol difficult to explain real rates to cause this also?

And then there's  his "broadly positive" comment about the ECB's experience with negative interest rates. It's right of the waffle iron.