ECB’s Villeroy: Focus on April hike is premature
European Central Bank (ECB) policymaker and governor of the Bank of France, François Villeroy de Galhau, said during European trading hours on Thursday that it is premature to price in an interest rate hike in the policy meeting later this month.
Additional remarks
The ECB would have no hesitation to act if and when necessary.
There's no rush to act at the moment.
There's no predetermined rate path.
The ECB will need critical mass of data before acting.
Our vigilance is first and foremost on the risk of persistent inflation.
Underlying inflation is still close to target.
Market reaction
There seems to be no impact of ECB Villeroy's comments on the Euro (EUR); however, EUR/USD has turned upside down in the European trade due to a sharp recovery in the US Dollar (USD). As of writing, EUR/USD is down 0.15% to near 1.1780.
ECB FAQs
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy for the region. The ECB primary mandate is to maintain price stability, which means keeping inflation at around 2%. Its primary tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will usually result in a stronger Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
In extreme situations, the European Central Bank can enact a policy tool called Quantitative Easing. QE is the process by which the ECB prints Euros and uses them to buy assets – usually government or corporate bonds – from banks and other financial institutions. QE usually results in a weaker Euro. QE is a last resort when simply lowering interest rates is unlikely to achieve the objective of price stability. The ECB used it during the Great Financial Crisis in 2009-11, in 2015 when inflation remained stubbornly low, as well as during the covid pandemic.
Quantitative tightening (QT) is the reverse of QE. It is undertaken after QE when an economic recovery is underway and inflation starts rising. Whilst in QE the European Central Bank (ECB) purchases government and corporate bonds from financial institutions to provide them with liquidity, in QT the ECB stops buying more bonds, and stops reinvesting the principal maturing on the bonds it already holds. It is usually positive (or bullish) for the Euro.
Author
Sagar Dua
FXStreet
Sagar Dua is associated with the financial markets from his college days. Along with pursuing post-graduation in Commerce in 2014, he started his markets training with chart analysis.
