Mario Draghi To Markets: Relax. I've Got This.

European Central Bank President Mario Draghi faced down his critics Thursday in Frankfurt with a defiant "be patient" message to markets and politicians alike as he kept the Bank's key interest rates unchanged and offered no clues as to when he might signal an end to the its $2.75 billion quantitative easing program.

Unfazed by both investor expectations and the surging euro, which has gained more than 12% against the dollar since the start of the second quarter and rose to a near 2.5-year high of 1.2040 during his question-and-answer session with the media, Draghi said that while he remained confident inflation would "eventually" converge to the Bank's 'just below 2%' target amid a "robust and broad-based" Eurozone recovery, now was not the time to plot an exit from easy monetary policy.

"While the ongoing economic expansion provides confidence that inflation will gradually head to levels in line with our inflation aim, it has yet to translate sufficiently into stronger inflation dynamics," Draghi said in his opening statement. "Measures of underlying inflation have ticked up slightly in recent months but, overall, remain at subdued levels."

"Therefore, a very substantial degree of monetary accommodation is still needed for underlying inflation pressures to gradually build up and support headline inflation developments in the medium term," he added.

The euro's gains, however, did push the Bank's economists to trim near-term consumer price projections, which now envisage an average inflation rate of 1.2% near year (from 1.3%) and 1.5% in 2019 (from 1.6%). Draghi said later that he didn't think inflation would converge to the Bank's target until 2020, but noted that the downward revisions were "mainly due to the appreciation of the exchange rate, which means we will have to take account of this element of our information set in policy decisions."

The moves left some investors disappointed that the currency area's ongoing recovery -- Eurostat lifted its estimate of second quarter GDP to 2.3% only this morning -- and improving labor market didn't convince Draghi or his rate-setting colleagues to consider signalling an end, or at least a slowing, of the €60 billion pace of monthly asset purchases.

The best Draghi could offer was a non-committal reference to look at the "calibration of our policy instruments beyond the end of the year" before the Bank's next meeting in October in his prepared statement. Even that, however, was given a heavy caveat during his Q&A with journalists: "if we're ready in October, we'll announce. If not, we can postpone ..."

The decision is likely to go down poorly in Germany, where two of the most influential figures in Europe's biggest economy only yesterday called for an end to ultra-low interest rates just a few miles down the road from the Bank's headquarters in Frankfurt.

Wolfgang Schaeuble, the country's plain-speaking finance minister and Chancellor Angela Merkel's staunchest ally, urged Draghi to "normalise" ECB policy given that "we have come back to a normal situation much quicker than people thought."

That suggestion followed shortly on the heels of a similar suggestion from John Cryan, the CEO of Deutsche Bank DB, Germany's biggest lender and one of the largest banks in the world, who declared that "the era of cheap money in Europe should come to an end - despite the strong euro."