There is no doubt in our mind that the ECB at its next meeting on 8 September will revise its inflation projections considerably higher whereas it is less likely that there will be sufficient information - short of a gas rationing shock - to change significantly the growth forecast.
ECB raises key rates by 50 bps in July, abandons forward guidance
EUROPEAN CENTRAL BANK EMERGENCY MEASURES
The ECB said in a statement on Monday, a sustained rise in oil prices will reduce the eurozone's potential output by less than 1% over four years, Reuters reports. The reduction in the bloc’s output will account for a small hit that could be further reduced by the green transition, the ECB said.
In a pre-release of its economic bulletin published on Tuesday, the European Central Bank (ECB) revealed that the fiscal support provided to the euro area economies amidst the Russia-Ukraine war is boosting the bloc’s GDP while temporarily lowering inflation, per Bloomberg.
ECB latest analysis
ECB LATEST NEWS
July MEETING REVIEW
The European Central Bank (ECB) announced on Thursday that it raised its key rates by 50 basis points (bps) following the July policy meeting. Markets were expecting the bank to hike its rates by 25 bps. The bank also announced that the Governing Council approved the new anti-fragmentation tool titled "Transmission Protection Instrument (TPI)."
Forward guidance ist kaput. Has Germany secured a big rate hike by agreeing to shore up Italian bonds? That may or may not be the case, but the European Central Bank has undoubtedly delivered a massive package. That is positive for the euro.
June MEETING REVIEW
The European Central Bank's (ECB) governing council on Thursday decided to keep its benchmark deposit rate at -0.50%, as unanimously expected by market participants. The bank also said that it intends to raise interest rates by 25 bps at the July meeting, after having ended its Asset Purchase Programme (APP) on 1 July.
"It is tough making predictions, especially about the future" – these famous words by Yogi Berra may sound laughable, but are the gist of my bearish bias against the euro. The European Central Bank has signaled its intent to raise rates by 25 bps in July, but left the door open to a 50 bps move in September.
APRIL MEETING REVIEW
The European Central Bank left its benchmark deposit rate unchanged at -0.50% on Thursday as unanimously expected by analysts. The central bank also reiterated its guidance that net asset purchases (Quantitative Easing or QE) should end in Q3.
Price pressures have intensified – and that is where the European Central Bank's hawkishness ends. All the rest is dovish, and that is why the euro is under pressure in response to this decision. There may be more to come.
MARCH MEETING REVIEW
Inflation in the US, as measured by the headline Consumer Price Index (CPI), rose to 7.9% YoY in February, up from 7.5% in January, the US Bureau of Labor Statistics reported on Thursday. That was in line median economist forecasts for a reading of 7.9%.
Influenced by inflation, (almost) ignoring the war – the European Central Bank has announced a fast pace of tapering its bond-buying scheme as prices rise and despite the adverse effects of Russia's invasion of Ukraine.
February meeting review
The European Central Bank opted to leave its deposit rate unchanged at -0.5% on Thursday as unanimously expected. The bank maintained its guidance on interest rates, saying they would remain at present or lower levels until the conditions for a rate hike have been met. The bank also reaffirmed its QE policy guidance from December; that the PEPP will end in March, that in Q2 the APP will be lifted to EUR 40B per month, then tapered back to EUR 20B per month by Q4, while PEPP reinvestments will continue to the end of 2024.
November meeting review
Will 2022 be like 2019? That is what many people are hoping for, after nearly two years with covid. Hopes for next year also seem to guide the European Central Bank, which is why EUR/USD has room to lose its recent gains – related to weak US GDP. ECB President Christine Lagarde cited three critical factors that have pushed inflation higher.
September meeting review
The European Central Bank (ECB) decided to leave the interest rates on the main refinancing operations, the marginal lending facility and the deposit facility unchanged at 0.00%, 0.25% and -0.50%, respectively, as expected.