ECB night

ECB Meeting: Policy Normalisation Is Likely To Be Slow And Gradual To Enable Ongoing Policy Support

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…

ECB's president Christine Lagarde

The ECB’s Holistic Approach

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.

ECB Bundesbank

Central Bank Independence: From The Theory To The Practice

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.


Busy Thursday

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.

The ECB's decision on interest rates hits the European banking sector

The ECB Links The Dividend Veto To The Default Rate; Santander Urges It To Reconsider

The ECB is focusing on the proactive management of NPLs, linking the dividend policy to the impact of Covid19 on credit quality. Estimates suggest an increase in delinquency rates of up to €1.4 Tr in an adverse macro scenario, equivalent to 5.7% of the capital ratio. At a round table organized last week by the Bundesbank, Banco Santander chairman Ana Patricia Botín argued that the dividend veto is one reason why the banking sector is not sufficiently resilient “in terms of its ability to attract capital.”


“The ECB Is Monitoring Current Developments”

The ECB has left its policy stance unchanged after today’s GC meeting. The tone of the press conference was a touch less dovish than expected and President Lagarde has not signaled any large swing in policy in the near term. The overall message was clear: the ECB is monitoring current developments (including the EUR) and assessing the efficiency of the current policy measures before acting with more accommodation

ecb luminale

Can The ECB Strike Back?

We do not expect ECB policy action this week, but guidance is that the ECB has its finger on the trigger for more PEPP (Pandemic Emergency Purchase Programme). Communication will not be easy, but EUR appreciation, record low core inflation and Fed policy should make for very dovish tones. We expect €500bn more PEPP in December, but inflation expectations urgently need attention too. Front-end rates will likely be supported by FX concerns, but credit risks are increasingly underpriced in by the market. Beyond verbal intervention, we think the ECB has limited options to weaken EUR for now.

Chris Lagarde

ECB Jawboning The Euro

Last week in financial markets saw the euro rise above the $1.20 threshold. ECB chief economist Philip Lane intervened recalling market participants that the exchange rate “mattered”. The single currency traded down to $1.18 shortly after the comments. Currency appreciation amid near-zero inflation in the euro area is unwelcome for future price developments. Christine Lagarde’s message next Thursday after the governing council will likely echo Lane’s comments.