The ECB sector opens beyond its pledge to survive at negative interest rates

The European Central Bank’s move to become more tolerant of inflation before raising interest rates is an early sign of the sector’s debate over when to curtail bond purchases and is part of more hawkish policy makers. Caused immediate criticism from.

After the latest policy-making meeting on Thursday, the ECB said it would continue to buy bonds and maintain severe negative interest rates to shift the eurozone economy from a persistent pattern of sluggish inflation. I was ready to tolerate the overshoot of the price increase target.

But the wording of the new stance has elicited criticism from leaders of central banks in Germany and Belgium, according to controversial people.

In a policy debate, Deutsche Bundesbank Governor Jens Weitmann complained that the new conditions set by the ECB were too aggressive, increasing the risk of inflation rising above target.

In addition, De Nederlandsche Bank Governor Klaas Knot called for the ECB to separate the timing of its suspension of bond purchases from the new interest rate guidance, people familiar with the debate said. Another councilor said the idea was withdrawn after policymakers decided to postpone discussions on asset purchase plans until the fall.

At a post-conference press conference, ECB Governor Christine Lagarde said the guidance was “slightly different” but still received “overwhelming majority” support.

Some ECB rate setters Called He called for a € 1.85 trillion reduction in pandemic bond-buying programs, but the central bank did not change its guidance on asset purchases, and Lagarde said it was “totally premature” to discuss those taperings. ..

The ECB said in its policy-making announcement that the revised guidance “emphasizes its commitment to maintain a sustainable and accommodative monetary policy stance to achieve its inflation target.”

The central banks of Germany and the Netherlands declined to comment and could not contact the central bank of Belgium.

Investors said the new guidance released two weeks after the ECB announced New strategy This raised the official inflation target to 2%, making it more likely to maintain a super-loose policy for longer.

Martin Walberg, senior economist at Generali Investments, said the ECB’s shift meant “there is room to boost the first rise in interest rates beyond 2024.”

Eurozone government bond yields fell slightly after the announcement, before shrinking. Germany’s 10-year yield was 0.04 percentage points lower, minus 0.43 percent, while Italy’s 10-year yield fell 0.64 percent by a similar amount. Bond yields fall as prices rise. The euro fell against the US dollar, reaching a three-month low of $ 1.1762.

Erga Balchi, head of macro research at the BlackRock Investment Institute, said the ECB will bring “dove surprises” and is likely to be followed by an “upward revision” of asset purchase plans later this year. Said.

“There are some ways before the effects of the pandemic of inflation disappear,” Lagarde said, suggesting that the ECB is unlikely to curtail bond purchases anytime soon. But she denied that the new wording implied low interest rates for a longer period of time, saying it would help achieve the goal.

The medium-term outlook for eurozone inflation was “suppressed” despite expectations for “strong growth” in the third quarter, she said, and the epidemic of delta coronavirus variants was “increased uncertainty.” “The cause of the virus” was added.

The ECB is prepared to allow a modest and temporary overshoot of the inflation target, as it believes that “permanent” policies are needed when interest rates approach the current lows at which rate cuts are effective. Said that it was done.

The central bank has promised not to raise the minus 0.5% deposit rate until inflation reaches the new 2% target “much earlier than the end of the forecast period and during the rest of the forecast period.”

“This could also mean a temporary period when inflation is slightly above target,” the ECB added.

Inflation rose to 1.9% in June, but most investors Stay skeptical The potential for banks to reach new goals.

“It was a bit like old wine in a new bottle. Communication has changed a bit, but in reality the ECB is very dovish and caps tapering speculation.” Carsten Brzeski, Head of Macro Research at ING, said.

Some of the world’s major central banks, such as Canada and Australia, have decided to slow down their Covid-related stimulus programs. Others, such as the Federal Reserve Board of Governors, are still discussing when to end it.

Additional report by Tommy Stubbington in London

The ECB sector opens beyond its pledge to survive at negative interest rates

Source link The ECB sector opens beyond its pledge to survive at negative interest rates

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