Tag Archives: ECB

While we expect the ECB to remain on hold at its next policy meeting on April 21, a number of issues are coming steadily into focus Read the full report here The ECB is facing a complex, albeit not completely negative, macro-financial environment following its impressive policy package announcement on 10 March. Nevertheless, barring some new shock, beyond some fine-tuning measures, the ECB should remain on hold at its next policy meeting on 21 April. Instead, we expect different aspects...

There are four events that will shape market psychology in the week ahead.  They are Yellen's speech to the NY Economic Club, US jobs data, eurozone March CPI and PMI, and Japan's Tankan Survey.   The broad backdrop is characterized by the rebuilding of risk appetites since the middle of February, though the MSCI emerging market equity index put in its low on January 20, as did the CRB Index.  The price of oil appeared to bottom then as well, but it retested the lows in mid-February and...

We think some of the ECB’s critics are missing the point. In particular, we expect TLTRO II to lower bank funding costs, mitigate the adverse consequences of low (negative) rates on bank margins, strengthen the ECB’s forward guidance and improve the transmission of monetary policy. We expect the take-up at all four TLTRO II operations to exceed EUR500bn, of which roughly EUR400bn should be rolled over from TLTRO I. The resulting reduction in terms of the cost of negative rates could be...

The euro's rallied shortly after the ECB announced numerous monetary measures that in their totality were more than expected.  Many saw this as proof that monetary policy had lost its effectiveness, and central banks have lost credibility.    Recall summer of 2012.  The market anticipated another round of asset purchases by the Federal Reserve.  The euro rallied from about $1.2050 in late July to $1.30 on September 13 when Bernanke announced the open-ended QE3.  The euro peaked two days...

Hard activity data for the euro area have improved since January, but downside risks still dominate despite the ECB’s support. At the very least, monetary policy looks set to remain exceptionally accommodative for an extended period of time. Euro area business surveys (PMIs and IFO) showed renewed signs of life in March after the drops seen in the first two months of the year. Surveys also highlighted the contrasting trend between the manufacturing sector, dented by a subdued external...

In this post, we provide a rough assessment of the reflationary impact of the newly-announced ECB’s measures through a simple framework. Ahead of the December 2015 meeting, we used a simple method based on the ECB’s leaked models in the German press in order to guestimate the impact of QE on inflation, and thus the potential for additional easing based on the ECB’s own forecasts. We use the same framework to assess the potential macro impact of the new measures announced by the ECB last...

The ECB announced measures that exceeded expectations, targeting the refi rate, its monthly asset purchases, a new corporate bonds purchase programme, new TLTROs and a negative rate. The deposit rate was cut as expected, but Draghi said that “no more cuts” were anticipated at this stage. The ECB’s Governing Council delivered a comprehensive policy package that exceeded market expectations by a large margin. The 10bp deposit rate cut to -0.40% was expected but other measures were not,...

Our baseline scenario remains for the ECB to announce a comprehensive policy package including a 10bp deposit rate cut (along with a tiered deposit system), a EUR20bn increase in the pace of asset purchases to EUR80bn per month (along with changes to QE modalities), as well as more attractive TLTRO operations. This time is different – it’s no longer about oil At first glance it feels as though market participants have gone all the way back to three months ago, when they were expecting a...

Today’s inflation report raises the likelihood of an even bigger easing package to be delivered at the 10 March meeting. Not only were today’s preliminary inflation figures for the euro area very weak, but the breakdown raised new concerns over the underlying trend in consumer prices – a potential headache for the ECB, independently of recent developments in the real economy and financial markets. According to Eurostat’s estimates, euro area HICP inflation fell to -0.19% y-o-y in...

After a large and unexpected fall in December, largely due to a collapse in lending to non-financial corporations in the Netherlands, euro area bank credit flows rebounded sharply in January, in line with other indicators such as the ECB’s Bank Lending Survey We continue to believe that the credit cycle has legs and we therefore maintain our forecast for the euro area GDP growth unchanged at 1.8% for 2016. Nevertheless, we also remain cautious. January bank credit flows came before the...