State Street on ECB monetary policy decision
June 14, 2018

In reaction to today's European Central Bank (ECB) Monetary Policy Committee (MPC) meeting, Timothy Graf, Head of macro strategy for EMEA at State Street Global Markets, and Brendan Lardner, active fixed income portfolio Manager at State Street Global Advisors, offer their views.

Graf comments: "No alarms and not too many surprises other than quite dovish forward guidance on rates from the ECB. Going into the meeting, markets were expecting some hint that their quantitative easing (QE) programme would start to wind down at some stage this year; we now have confirmation that quantitative easing (QE) will end in December.

Looking ahead, the ECB does not have an easy task in setting policy for the medium to long term. Growth and inflation conditions are much improved, but more evidence is needed to see if the Q1 slowdown was, indeed, temporary, a very difficult judgement to make. For that matter, core inflation is still a long way from the ECB's target of ‘below, but close to, two percent'."

Lardner comments: "The ECB delivered a mixed message today. The announcement that they intend to wind down asset purchases by the end of the year ties in with recent comments from the central bank. The ECB is clearly willing to overlook recent weaker growth data from the eurozone, focussing instead on the inflation outlook, which has improved as indicated by the upward revisions in ECB staff forecasts released today.  

"In the ECB's view, the criteria it has set to end QE have been met. It could also be read that the ECB wished to end its asset purchase programme as early as possible so as not to be seen to be adjusting purchases due to political considerations. Against the somewhat hawkish implication of the ending of asset purchases, they looked to counter this with more dovish comments on the path of rates going forward, and on the reinvestment of maturing ECB bond holdings.

"Rates were left unchanged and the ECB announced their intention to leave them as such at least through summer 2019. This may indicate that the first hike might not be until September 2019, on balance a little later than the market had been expecting. The initial market reaction has been for a weakening of the euro and a fall in core bond yields as the market reprices the policy path."





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In reaction to today's European Central Bank (ECB) Monetary Policy Committee (MPC) meeting, Timothy Graf, Head of macro strategy for EMEA at State Street Global Markets, and Brendan Lardner, active fixed income portfolio Manager at State Street Global Advisors, offer their views.

Graf comments: "No alarms and not too many surprises other than quite dovish forward guidance on rates from the ECB. Going into the meeting, markets were expecting some hint that their quantitative easing (QE) programme would start to wind down at some stage this year; we now have confirmation that quantitative easing (QE) will end in December.

Looking ahead, the ECB does not have an easy task in setting policy for the medium to long term. Growth and inflation conditions are much improved, but more evidence is needed to see if the Q1 slowdown was, indeed, temporary, a very difficult judgement to make. For that matter, core inflation is still a long way from the ECB's target of ‘below, but close to, two percent'."

Lardner comments: "The ECB delivered a mixed message today. The announcement that they intend to wind down asset purchases by the end of the year ties in with recent comments from the central bank. The ECB is clearly willing to overlook recent weaker growth data from the eurozone, focussing instead on the inflation outlook, which has improved as indicated by the upward revisions in ECB staff forecasts released today.  

"In the ECB's view, the criteria it has set to end QE have been met. It could also be read that the ECB wished to end its asset purchase programme as early as possible so as not to be seen to be adjusting purchases due to political considerations. Against the somewhat hawkish implication of the ending of asset purchases, they looked to counter this with more dovish comments on the path of rates going forward, and on the reinvestment of maturing ECB bond holdings.

"Rates were left unchanged and the ECB announced their intention to leave them as such at least through summer 2019. This may indicate that the first hike might not be until September 2019, on balance a little later than the market had been expecting. The initial market reaction has been for a weakening of the euro and a fall in core bond yields as the market reprices the policy path."



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