Francisco Vidal (Intermoney) | For yet another day, the spotlight is on the words of ECB members. They give their views on their particular vision of the course of inflation, with the consequent impact on the markets. And the latter react by interpreting the statements in terms of the central bank’s speed in withdrawing its stimuli. On Thursday, the Financial Times reported Philip Lane had said privately that they expect…
JP Marín-Arrese | All was quiet on the ECB front for too long. Suddenly, last week it announced its intention to scale down the emergency asset-buying programme starting next month. While falling short of the tapering heralded weeks ago by Jerome Powell, it represents indeed a shift in the dull do-nothing approach followed for months and years. Once embracing quantitative easing, much later than other central banks, it proved unable…
Annalisa Piazza (MFS) | ECB “recalibrates policy”: Nothing else has changed. Indeed, the rest of the policy announcement was a carbon copy of what we heard back in July. Forward guidance on both rates and QE was confirmed, along with the re-investment programmes. The slower pace of PEPP had been widely flagged by ECB officials over the past few weeks so the announcement was hardly a surprise. That said, the…
Scander Bentchikou (Lazard Frères Gestion) | The restrictions on bank dividends, which have been in force since March 2020, ended on Friday. For banks and their shareholders, this is a relief. The measure, supposed to protect banks from the crisis, has done more harm than good. Technically, the banking sector’s dividends made a big comeback in spring 2021. However, the amounts paid remained well below their 2019 levels, given the still numerous restrictions. The return to normal will have to wait for the results of the banking stress tests, published on 31 July by the European Banking Authority.
Peter Allen Goves (MFS Investment) | The need to avoid premature tightening by the ECB and the strengthened guidance is supportive for core rates in our view. The strong association of guidance with the inflation outlook will also probably raises the prominence of the projections. Overall, the new guidance reinforces the ECB’s commitment to maintain accommodation to reach its price stability aim. Given that projections remain below target, this means…
On the otther hand, the European Central Bank warns that it will monitor excessive bank dividends. On the otther hand, the European Central Bank warns that it will monitor excessive bank dividends.
Laura Becerra (Caixabank Research) | If we want to get a better understanding of monetary policy decision-making, we must pay close attention to changes in financial conditions. To do this, there is an important initial step: knowing how to measure them.
Javier García Arenas and Adrià Morron Salmeron (CaixaBank ) | The independence of central banks seems indisputable, even more so in these times of pandemic, in which they have increased their use of unconventional policies and provided coverage for the high funding needs of states. In this article we will explore the theory and empirical evidence supporting the importance for central banks to maintain their independence.
This Thursday could be a key moment for Europe, with the ECB meeting and the beginning of the European council. We could get a positive surprise on the time extension of PEPP, but the constraints on the “top-up” are significant. There is some tentative progress on the “rule of law” spat but hurdles abound. The Council meeting could bring about the denouement of the Brexit saga.
Lagarde couldn’t have been clearer that risks are now tilted to the downside and that the economic recovery was losing momentum. Given today’s meeting, we expect an expansion of PEPP and further policy measures clearly now cannot be ruled out.