ECB Leaves Rates Unchanged As Expected But Signals End of QE

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  • #17039
    Helmholtz Watson

    ECB interest rates on the main refinancing operations…



    In a nutshell the ECB announced an end date which should be euro positive hence the spike to 1.1851 but depends on tapering and
    interest rates aren’t going up until Summer 2019. Euro flipped and traded down to 1.1619 – a dump of 230 pips quickly – trades 1.1648.


    June 2018 ECB press conference – Prepared text highlights

    Progress toward sustained adjustment of inflation substantial
    Longer term inflation expectations well anchored
    confident that convergence to TGT will continue
    convergence to target will be maintained even after asset purchase program
    significant policy stimulus still needed
    Support will be provided by net asset persistently in the year

    The ECB will remain vigilant and adjust all its instruments as inappropriate to ensure inflation moves toward the government councils target
    moderation of growth includes temporary factors, external trade and uncertainty
    says growth remains solid and broad-based
    the latest economic results are weaker but remain consistent with ongoing and solid economic growth
    consumption is supported by ongoing employment gains, and growing household wealth
    housing demand remains robust

    2018 GDP growth at 2.1% versus 2.4% in March
    2019 GDP growth of 1.9% versus 1.9% in March
    2020 GDP growth at 1.7% versus 1.7% in March

    risk surrounding growth outlook broadly balanced, but uncertainties including threat from global trade and protectionism
    headline inflation likely to hoover around current levels for remainder of the year
    levels of underlying inflation remain generally muted
    ECB expects 2018 inflation at 1.7% versus 1.4% in March
    ECB expects 2019 inflation 1.7% versus 1.4% in March
    ECB expects 2020 inflation and 1.7% versus 1.7% in March
    inflation forecast changes reflect mainly oil prices
    broad-based growth calls for rebuilding of fiscal buffers, particularly in countries where government debt remains time

    Source ForexLive, ECB


    From The Q&A

    Assessment of counsel: doesn’t want to underplay risks
    Softer patch 1st seemed to extend into second-quarter in some countries
    Sees increasing uncertainty from risks

    The soft patches will continue in some countries in Q2
    By and large the situation is overall similar and risks remain broadly balance
    Increase in geopolitical uncertainty and domestic uncertainty.

    Should see progress on growth from fiscal expansion in United States and in medium-term euro zone
    Market reaction shows inflation self sustained

    The characteristic on policy remains be patient, prudent, and persistent. The decision was unanimous
    There’s a desire to keep optionality open
    Draghi says asset purchase program is not disappearing. It remains in monetary policy toolbox
    Did not discuss tapering options

    We should dramatize changes in government policies too much
    Italy discussion not meaningful today
    Expects rates to remain unchanged to at least the summer of 2019
    If through the summer meant September, we would have said September

    We have not decided reinvestment yet. It is an important decision. It is not a marginal decision
    Reinvestment is one of our main policy tools

    The direct effect from trade measure are pretty limited
    If there is general retaliation, effect could be more significant
    The effect of trade measures and retaliations are also on confidence. Which is hard to measure.


    Long euro herd – part of it the unwinding and then reestablishing after Italy and back then the Fed wasn’t raising so that Bund/10 year is going to be this wider or wider till Summer 2019


    ECB Nowotny says ECB is starting exit from expansive monetary policy

    Expects ECB to raise rates after summer of 2019
    Greece and others can deal with raise rates

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