ECB monetary policy

ECB loose policy messages favour undervalued Euro

“Beyond our scepticism about the ability of new stimulus measures to drive the economy, we recognise that the ECB is obliged to act which will create a situation unfavourable for its inflation targets,” analysts at Intermoney point out. In this scenario, we consider that the reactivation of asset purchases with certain adjustments (based on the reality of German debt) would be the measure with the greatest positive impact, more so than interest rate cuts. Nevertheless, if the second path is explored, it would be accompanied by measures to mitigate the effect of negative rates on the banking sector.

 


The ECB “does not give up” to low inflation

The European Central Bank will have to relax its monetary policy again, possibly through further reductions in interest rates or the purchase of assets, if inflation in the eurozone does not meet its target. Chairman Mario Draghi underlined that the ECB’s the limits are flexible because the its legal powers allow it to deploy tools that are both “necessary and proportionate”.



Whatever it takes, once again

“There is no probability of deflation, there is very low probability of recession, there are no threats of de-anchoring of inflation expectations,” Mario Draghi said on Thursday. The governor of the European Central Bank announced once again – as he did in March – that it will delay the rate hike at least until 2020 and kept all options open, especially in case economic prospects deteriorate. ECB’s decision is in line with those of other central banks in the world. The Fed has just opened the door to a rate cut, something that Australia and India have already done.


The Japanisation of the European economy

José Ramón Díez Guijarro (Bankia Estudios) | Fortunately, in the EMU, with the exception of the second half of 2014, when the expected inflation expectations traded by the five year German bond reached negative territory, this deflation risk seems much more contained. This could be the principal difference between the European and Japanese economies.

 

 


China_debt

Debt as the current biggest economic threat

The biggest economic threat today is not the interest rate, nor the exchange rates, nor the possible trade war fuelled by Trump: it’s the debt accumulated by countries across the world. This has increased 12% of GDP since the crisis, totalling 225% of global GDP. Starting with China, followed by Europe and ending up with the US, the threat from the current and future debt is terrifying.





Not just rates weighin on banking margins

It’s not just interest rates which are weighing on banking margins

José Luis M. Campuzano (Spanish Banking Association) | It’s been balance sheet adjustments and the worsening of the deliquency rate which have been mainly responsible for the deterioration in banking margins over the last few years. It’s important for the ECB to establish a clear strategy for monetary normalisation for the future.