J.P. Marín-Arrese |Christine Lagarde announced the first rate hike in a decade as an upfront offensive against inflationary pressures. While no one doubts this tightening aims at cutting short the current price race, the claim that it is an early reaction fails to match the records. For more than a year, all advanced economies have witnessed soaring prices. Yet, the ECB dismissed this trend as a temporary mismatch betwen demand…
Peter Goves, MFS Investment Management | A historic decision and the end of an era. No more negative policy rates from the ECB following the bold 50bp hike at the July meeting. Clearly, the ECB remains focused on its primary mandate: price stability. The shift in guidance is interesting and makes the ECB much data dependent as an institution. In turn, it likely means short rates will retain their sensitive…
The ECB confirms that it will remain present in the primary via re-investments. Also that the ESG strategy of the CSPP will arrive by the end of the year. In an explanatory note, the ECB confirms one of the doubts that continued to circulate among investors with the end of the CSPP’s net purchases (today): what its role would be after taking on a leading role in the primary market…
Link | The governor of the Central Bank of France and member of the ECB’s Governing Council, François Villeroy de Galhau, said in an interview yesterday that the tool being designed by the ECB to prevent fragmentation in the eurozone must send a message that there will be no limits. The more credibility it has, he said, the less it may have to be used. Villeroy defended the sale of…
Lidia Conde (Francfort) | explains Marcel Fratzscher, president of the DIW (Berlin Institute for Economic Research) who headed the ECB’s International Economic Policy Analysis Department in 2008-2013. In an interview to be published in this month’s issue of Consejeros magazine, Fratzscher explains that “The ECB is habdicapped because it cannot tacle the problem by raising rates, neither this year nor the next”, which is why “I am not in favour…
Fernando González Urbaneja | Uncertainty, volatility, acceleration… these are common concepts, clichés in any economic presentation that abound these days. We have seen it all in real time over the last few hours. Inflation rates soaring to almost double-digit levels over the last few months have put the (independent and competent) central banks and their monetary strategies on the spot. Inflation is a monetary issue, therefore the responsibility of the…
The ECB will abruptly reduce gross purchases of corporate debt from July, from a monthly average of €8 billion of gross purchases in the first five months of 2022 to just €1.8 billion for reinvestments. With the ECB’s announcement yesterday of the end of net APP purchases as of July, a six-year period of corporate QE comes to an end (since 2016 and with the exception of 2019) and has…
Peter Allen Goves (MFS Investment) | The June ECB meeting had several new and meaningful policy announcements compared with the last meeting. In general, policy decisions were in line with Lagarde’s previously announced roadmap, but there were various hawkish twists and adjustments. In our view, the policy statement further justified curve flattening and affirmed the bear market status for euro rates, not least given the inflationary backdrop. Much of this…
Francisco Vidal (Intermoney) | In China, the authorities insist that they will support a scenario of solid economic growth with their actions. However, the week began in the Asian giant with the 1 and 5-year LPR rates remaining at 3.7% and 4.6%, respectively. And while in China we are witnessing new promises of support for activity which do not materialise in immediate action, in many other countries we are witnessing…
Juan Pedro Marín-Arrese | Christine Lagarde is trying to convince the markets of the ECB’s strong determination to tame the current inflationary bout. To avoid having its reputation as caretaker of price stability tarnished, the ECB has to reverse the benign neglect shown up to now. Yet, Lagarde is conscious of the narrow scope monetary policy has when dealing with supply-side cost hikes. Thus, rather than taking the pivotal action…