Beijing time on Thursday (December 10) 20:45, the European Central Bank announced the interest rate resolution, the three key interest rates and asset purchase program (APP) remained unchanged, and said that at any time to adjust the tools as needed.
After the announcement of the ECB interest rate resolution, the euro rose 30 points against the dollar in the short term, German 10-year bond yields rose, Eurozone bond yields rose slightly, Italian 10-year bond yields were flat at 0.533%.
During Lagarde’s speech, the euro began to fall, down to 1.2100, after rising to 1.2138.
The meeting, the ECB said that interest rates will remain at current or lower levels until close to the inflation target.
For the bond purchase program, the ECB said that the purchase program for the epidemic will continue until the end of the crisis phase. It pointed out that the size of the emergency epidemic purchase program (PEPP) will increase by 500 billion euros, and the term will last at least until the end of March 2022 (previously lasted until the end of June 2021). And will be based on the asset purchase program to purchase debt 20 billion euros per month.
The ECB also decided to adjust the third round of targeted long-term refinancing operations (TLTRO) preferential interest rate, the specific conditions include three points.
▪ extending the application period of the preferential terms by 12 months to June 2022.
▪ three additional operations to be conducted between June and December 2021.
▪ an increase in the total amount of funds that counterparties are entitled to borrow in TLTRO III operations from 50% to 55% of their eligible loan stock.
The ECB will also provide an additional four non-targeted pandemic long-term refinancing operations (PELTRO) and the European System Repo Arrangement (EUREP) for national central banks and all temporary swap and repo lines with non-euro area central banks will be extended until March 2022.
Regarding the monetary policy measures taken, the ECB believes that.
“This will help to maintain favourable financing conditions during the pandemic, thereby supporting credit flows to all sectors of the economy, providing support to economic activity and maintaining inflation stability in the medium term.”
Market analysis suggests that this action by the ECB does not come as a surprise, as the ECB has made it clear for weeks that more easing is on the horizon and that bond purchases and liquidity arrangements for banks will form the backbone of any policy response.
For exchange rate policy, the ECB said it will continue to monitor exchange rate movements, which seems to indicate that it has no intention of stepping in to press the recently surging euro exchange rate.
Previously, according to the analysis of the big Morgan, the euro exchange rate or still has not reached the level of concern to the ECB. Analyst Mircea Vasiu, on the other hand, said
Recently, the euro against the dollar exchange rate exchange rate soared, which is a major problem facing the ECB. This summer, the ECB verbally intervened when the euro reached 1.20 against the dollar, thus buying some time and pushing Europe and the U.S. down to 1.16. However, over time, and the ECB has not taken any specific measures, the market once pushed Europe and the U.S. to a level close to 1.22. As long as the ECB does not take action, the market will not take it seriously.
For this resolution was announced, the euro exchange rate even short term upward strange trend, financial website Fxstreet analysts said.
“The size of the additional stimulus has been expected, and the longer-than-expected extension is boosting the euro.”
On the economic outlook, the ECB said uncertainty remains high, including in the dynamics of the pandemic and the timing of the vaccine rollout. It insisted that they will continue to take support measures “until it judges that the crisis phase of the epidemic is over.”
MARION AMIOT, Senior Eurozone Economist at S&P Global Ratings, said he is confident that the Eurozone can recover in 2021, and today’s ECB meeting provided additional reason for this optimism.
With further support from the ECB, European economies will be better able to withstand a second blockade. GDP across the eurozone is expected to rebound by 4.8% in 2021, thanks to a vaccine expected to be introduced in the first half of next year, another layer of monetary policy support from the ECB through 2022, and fiscal stimulus.
Lagarde: Eurozone economy expected to shrink in the fourth quarter
Lagarde said after the press release, the new crown epidemic continues to pose serious risks to the economy, the service sector received a serious depression, so the ECB expects the eurozone economy to shrink by 2.2% in the fourth quarter. However, the contraction is not as severe as the second quarter.
She said, from the data obtained, the new crown epidemic on the recent impact is more obvious, the service sector is severely depressed; eurozone inflation is still very low, recent data show that inflation continues to be low, inflation will remain negative until early 2021.
The ECB expects inflation in the eurozone to be 0.2% in 2020, previously expected to be 0.3%; inflation in 2021 is expected to be 1% and previously expected to be the same; inflation in 2022 is expected to be 1.1%, previously expected to be 1.3%. In the medium term, demand will put upward pressure on inflation once the impact of the new crown epidemic subsides.
Regarding the ECB’s emergency bond purchase program, which is being scaled up again, Lagarde said that the Emergency Anti-Epidemic Purchase Program (PEPP) instrument will not be fully used. The tools can be recalibrated if needed. She also said that the ECB measures help to protect financial conditions.
On the exchange rate, Lagarde said she would continue to monitor the exchange rate. The euro exchange rate is currently suppressing inflation, and a stronger euro puts downward pressure on prices. The European Central Bank will monitor the exchange rate very carefully.
Lagarde also mentioned fiscal policy, saying that the risk of a delayed recovery exists and that national fiscal policy support is still needed, and that an ambitious, coordinated fiscal stance is essential. The EU recovery fund needs to be operational immediately and without delays.
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