June 10, 2021 | 09:43
ECB .... Taking The Summer Off
Well, at least the ECB didn't pull any surprises. True to each Governing Council member's word (at least, the ones who spoke publicly), the central bank made no direct changes to policy, vowing to continue providing plenty of monetary support by keeping rates at record lows and by buying bonds at a "significantly" faster pace than during Q1.
So, in case anyone has forgotten:
And that was the one very interesting subtle point ...and I need to give our European Head of FX Strategy Stephen Gallo full credit for jumping on this. The pace of purchases will be done at a "significantly" faster pace than Q1, which implies that the rate could be slower than Q2. The ECB head expertly deflected a direct answer, but used the phrase "steady hand" to describe their decision. And, she refused to be dragged into any discussion about the purchases (the pace, which vehicle they will use ... APP? PEPP) as it is premature and too early.
Overall, the tone was more optimistic. And that was very evident in the assessment of risks.... now judged to be "broadly balanced" (versus in March, where they were still leaning to the downside). And, check out the new economic forecasts for this year and next (see the table below). A stronger acceleration in the second half is expected, thanks to further relaxation of containment measures, a pickup in global demand, and ongoing support from fiscal and monetary policy. Note that the inflation forecasts were also increased sharply but President Lagarde was quick to point out they were due to base effects, supply issues and energy.... those factors will fade. "There is no reason to expect rising inflation to last."
And, remember how I've been wondering where the hawks have disappeared to? Note that there was unanimous support for the introductory statement but only broad agreement to the details. There were diverging views. Indeed.
Bottom Line: At least the ECB walked its talk. The can has been kicked out to September. Enjoy your summer.