Caixabank Research |Monetary policy has reacted quickly and decisively to the COVID-19 pandemic. However, having successfully played the role of “fire-fighter”, the ECB will have to remain highly active to support the revival of the economy. In just four months the ECB has increased the size of its balance sheet by more than 1.6 trillion euros (+35%), as much as it did in the entire four years of the global financial crisis and the euro area’s double recession of 2008-2012. It took four years (2008-2012) to do so then.
ECB monetary policy
Olivia Álvarez (Monex Europe) | The ECB will host its first 2020 monetary policy meeting next Thursday 23rd. The event is unlikely to bring any changes over policy tools after the accommodative package introduced in September, but rather, it could turn the attention towards any changes in the economic outlook facing the Eurozone and the strategic review vowed by new chief Christine Lagarde.
Christine Lagarde gave her press conference as the head of the ECB yesterday. While alerting of the risks that the eurozone is facing, she promised to maintain both the official rates and the monetary stimuli of her predecessor Mario Draghi. However, the market’s focus was on the announcement of a broad “strategic review” of the ECB’s monetary policy, the first since 2003. This was interpreted as a possible change in the ECB targets, including inflation below 2%. Banks bounced with over + 3%.
Caixabank Research | After a September full of announcements, the next ECB meeting (24 October) will be transitional, in one sense at least: 31 October will see the end of Mario Draghi´s mandate, the most charismatic president in the institution´s history.
Gilles Moëc (AXA Group) | We knew that the European Central Bank (ECB) was very divided in the run-up to the Governing Council meeting on September 12th, but two weeks later the fallout of what must have been a very fractious discussion is still very much here.
Joachim Fels (PIMCO) | By cutting the deposit rate to -50 basis points, extending forward guidance, introducing a two-tiered system for excess reserves that mitigates the adverse impact of negative rates on bank profitability, and resuming open-ended net asset purchases of EUR 20 billion per month, the European Central Bank (ECB) recently provided clarity about its prospective monetary policy stance for the foreseeable future and thus well beyond the change in leadership from Mario Draghi to Christine Lagarde that takes place at the end of October.
J. P. Marín-Arrese | Against all odds, Draghi has secured consensus over his stimuli package by a cunny trade-off between the subdued intensity of individual measures in exchange of ample coverage. His brilliant brinkmanship as Chair of the ECB facilitates the task of his successor as Ms Lagarde can wait-and-see comfortably cushioned by a strong and comprehensive arsenal relieving her of the need to change course for many months to come.
A soft landing is the Holy Grail of central bankers. The glory that accrues from avoiding the economic costs of a recession by skilful manipulation of interest rates. But do such efforts to avoid, or mitigate, recessions simply store up trouble for the future? Does seeking to avoid a recession simply lead to a worse recession in the future?
Low growth below the 2% threshold coupled with below-target inflation has led our macros to believe that the ECB is taking extra stimulus for granted. This would mean the return of the centra banks’ asset repurchase program, experts at Morgan Stanley point out..
David F. Lafferty (Natixis) | Christine Lagarde’s appointment was somewhat of surprise where few economists predicted her to take the helm of the ECB. This gives some indication of how complex the negotiations were for the new EC governing positions.