As expected the European Central Bank held a steady line on its monetary policy announcement. Rates held the same, no changes to the already announced increase to the Pandemic Emergency Purchase Programme (PEPP) either. The only point of note is that they have shuffled the monetary policy statement around to say…. exactly the same thing. Markets have barely blinked an eye. Over to ECB President Lagarde to play a straight bat to every question.
Highlights (or should that be low-lights?)
The statement has been tidied up to an extent, but says all but exactly the same as in June.
- PEPP increase of €600bn to a total of €1350bn to run to the end of June 2021. Principal payments will be reinvested at least until the end of 2022.
- Purchases under the APP (Asset Purchase Programme) to continue at a monthly pace of €20bn will continue for as long as necessary and will end shortly before the key interest rates are raised.
- Interest rates stay the same: main refinancing rate at 0.0% and deposit rate at -0.50%.
- Forward Guidance: rates to stay at present levels or lower until inflation has “robustly” converged close to (but below) 2%.
- ECB stands ready to adjust all instruments as appropriate.
The ECB earned the right to sit on their hands this time round. The bigger than expected extension to the PEPP in June (an extra €600bn rather than the €500bn that had been anticipated) has shown that the Governing Council is ready to do what is necessary during these parlous economic times. An assessment in the next meeting of those measures and how economies are reacting to coming out of lockdown will be far more telling.
Of more importance this week will be how the fiscal side of the support can play out, with the EU leaders discussing the EU Recovery Fund. Getting progress there will be far more market moving, and for that reaction, we will know more on Monday morning.
Market have barely budged on this statement (as can be imagined) has been limited to say the least. There is little to go on for any decisive move.
- Bond yields: The very slightest up-tick on Bund yields (and if anything a slight narrowing of core/peripheral rates). If this continues it would be euro supportive.
- EUR/USD – A handful of pips higher. Market continues to trade just under the $1.1420 breakout. This remains a level that the bulls would look to be closing above.
- EUR/GBP – Almost no change.
- EUR/JPY – a move higher by about +10 pips. The inference being that if there is going to be a euro positive move following this ECB decision, EUR/JPY will be the outperformer.
- DAX – almost no change.