Once again Mario Draghi followed the expected script: it kept interest rates at 0%, where they have been for the last year; it left the deposit facility unchanged at -0.4% and did not modify the debt purchasing programme.
Eurozone inflation increased above the European Central Bank’s target for the first time in four years, Eurostat’s figures showed on Thursday. Inflation accelerated to 2 % in February from 1.8 % in January. A similar higher rate was last seen in January 2013. Markets expected prices to rise 1.9 %.
It was expected Draghi to avoid any discussion of early exit from QE and he did so. The ECB’s president stuck to the December line. “Self sustained”, not “transient” inflation is wanted. Still, things may complicate this spring.
BoAML | The ECB has closed many doors in December. The 2015-16 strategy of monetary policy covering for fiscal loosening to facilitate structural reform has changed.We are back to national governments having to navigate through strained fiscal trajectories, leaving very little room for mistakes. Potential growth prospects are not great, not only in the periphery.
Francesco Saraceno | Is the last BoJ move a serious risk to blow credibility. If it failed to lift the inflation to the 2% target, how can it be credibly believed to overshoot it? Credibility was associated in the past three decades to changing incentives over time, and invoked to recommend rules over discretion. Today, eight years into the zero lower bound, we go back to a more intuitive definition of credibility: announcing an objective and not being able to attain it.
J. L. Martínez Campuzano (Spanish Banking Association) | Little by little it’s being acknowledged. Just this Thursday, the President of the ECB openly admitted that monetary policy has its limits in terms of driving growth and stimulating inflation. And in fact, history tells us that monetary policy is more efficient for fighting inflation than for creating it.
BoAML | Almost as soon as the Bank of Japan had announced its yield-target strategy, there has been investor interest in whether the ECB could follow the same policy approach soon. In our view, such read-across is not evident, however.
BoAML | As the impeachment is no longer an obstacle for President Michel Temer’s government to go ahead with its economic agenda, we believe focus will likely shift back to the timing of the presentation of reforms and the start of the monetary policy easing cycle.
The European Central Bank kept monetary policy unchanged: interest rates on hold and made only its previous broad commitment to run bond-buying for as long as needed, stopping short of a formal extension of quantitative easing, as expected on Thursday. Indeed, the institution didn’t make any adjustments to its quantitative easing program of asset purchases. That program includes monthly purchases of 80 billion euros and is set to run at least…
Money in circulation (M2 in the US, M3 in the Eurozone) is not created by the central bank, but by the private banks when they lend. These loans are the fundamental countepart of M2 and M3. Loans are converted into deposits which provide the liquidity for us to function.