ECB’s Draghi warned that government debt puts upward pressure on rates. Draghi said “the need to place massive volumes of government securities on the market in the next two years puts upward pressure on interest rates”. He added that “once the crisis has passed, the public debt must be reduced sharply”. Draghi added that the risk of deflation in the global economy “now appears slight”, but also warned that while there are “encouraging signs” including an easing of tension on the financial markets since mid-March it is “not yet possible to point with certainty to a definitive cyclical inversion”. The comments on the small risk of deflation confirms our view that Euro-Zone interest rates have troughed, even though headline inflation is likely to fall into negative territory in coming months.
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