OPINION
Market Rating Before FOMC MeetingJan 31
ECB: Adjustments to the rates will take place after the end of net purchases
The European Central Bank’s meeting dated March 9 - 10 was concluded yesterday. Governing Council kept interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility unchanged at 0.00%, 0.25% and -0.50% respectively.
In the press release, the Governing Council revised the purchase schedule for its APP for the coming months. Monthly net purchases under the APP will amount to €40 billion in April, €30 billion in May and €20 billion in June. Accordingly the Governing Council will conclude net purchases under the APP in the third quarter and if the medium-term inflation outlook changes and if financing conditions become inconsistent, the Council will be ready to revise its schedule for net asset purchases.
ECB’s Governing Council intends to reinvest the principal payments from maturing securities purchased under the PEPP until at least the end of 2024. In any case, the future roll-off of the PEPP portfolio will be managed to avoid interference with the appropriate monetary policy stance. The Council will continue to monitor bank funding conditions and ensure that the maturing of operations under the third series of targeted longer-term refinancing operations (TLTRO III) does not hamper the smooth transmission of its monetary policy. It will also regularly assess how targeted lending operations are contributing to its monetary policy stance and it expects the special conditions applicable under TLTRO III to end in June 2022.
According to the ECB, the Russian invasion of Ukraine is a watershed for Europe and the Council will ensure smooth liquidity conditions and implement the sanctions decided by the European Union and European governments. In view of the highly uncertain environment caused by the Russian invasion of Ukraine, the Governing Council decided to extend the Eurosystem repo facility for central banks (EUREP) until 15 January 2023. EUREP will continue to complement the regular euro liquidity-providing arrangements for non-euro area central banks.
ECB cut its Real GDP projection for the Euro Area from 4.2 percent to 3.7 percent for 2022 and from 2.9 percent to 2.8 percent for 2023. On the other hand, it increased its HICP projection from 3.2 percent to 5.1 percent for 2022 and from 1.8 percent to 2.1 percent for 2023.
Following the second meeting of 2022, ECB President Christina Lagarde underlined that the Ukrainian war will have a significant impact on economic activity and inflation, and that the Governing Council has evaluated a number of scenarios on this issue, and that the ECB will do whatever is necessary to maintain price stability. She also said that the labor market has improved and supply bottlenecks have begun to ease, noting that inflation risks are on the upside in the short term, but that long-term inflation projections are likely to stabilize at 2 percent.
Shortly after the ECB meeting decisions, EURUSD currency pair tested 1.1121 yet declined to ~1.1000 afterwards and DAX40 fell from 13 848 to 13 345 and currently trading at ~ 13 430.
In the press release, the Governing Council revised the purchase schedule for its APP for the coming months. Monthly net purchases under the APP will amount to €40 billion in April, €30 billion in May and €20 billion in June. Accordingly the Governing Council will conclude net purchases under the APP in the third quarter and if the medium-term inflation outlook changes and if financing conditions become inconsistent, the Council will be ready to revise its schedule for net asset purchases.
ECB’s Governing Council intends to reinvest the principal payments from maturing securities purchased under the PEPP until at least the end of 2024. In any case, the future roll-off of the PEPP portfolio will be managed to avoid interference with the appropriate monetary policy stance. The Council will continue to monitor bank funding conditions and ensure that the maturing of operations under the third series of targeted longer-term refinancing operations (TLTRO III) does not hamper the smooth transmission of its monetary policy. It will also regularly assess how targeted lending operations are contributing to its monetary policy stance and it expects the special conditions applicable under TLTRO III to end in June 2022.
According to the ECB, the Russian invasion of Ukraine is a watershed for Europe and the Council will ensure smooth liquidity conditions and implement the sanctions decided by the European Union and European governments. In view of the highly uncertain environment caused by the Russian invasion of Ukraine, the Governing Council decided to extend the Eurosystem repo facility for central banks (EUREP) until 15 January 2023. EUREP will continue to complement the regular euro liquidity-providing arrangements for non-euro area central banks.
ECB cut its Real GDP projection for the Euro Area from 4.2 percent to 3.7 percent for 2022 and from 2.9 percent to 2.8 percent for 2023. On the other hand, it increased its HICP projection from 3.2 percent to 5.1 percent for 2022 and from 1.8 percent to 2.1 percent for 2023.
Following the second meeting of 2022, ECB President Christina Lagarde underlined that the Ukrainian war will have a significant impact on economic activity and inflation, and that the Governing Council has evaluated a number of scenarios on this issue, and that the ECB will do whatever is necessary to maintain price stability. She also said that the labor market has improved and supply bottlenecks have begun to ease, noting that inflation risks are on the upside in the short term, but that long-term inflation projections are likely to stabilize at 2 percent.
Shortly after the ECB meeting decisions, EURUSD currency pair tested 1.1121 yet declined to ~1.1000 afterwards and DAX40 fell from 13 848 to 13 345 and currently trading at ~ 13 430.
