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Key parts of the ECB Accounts (2/2)

ECB
  • For the market it is significant that ECB members stated that "While it was viewed as appropriate to convey the notion that the Governing Council intended to gain extra space to assess the conditions for a rate hike after net purchases had ended, it was also stressed that maximum optionality and flexibility needed to be maintained. In particular, it was important to avoid any misinterpretation of the new formulation as necessarily suggesting a long gap between the end of net purchases and an initial rate rise."
  • What this effectively means is that the ECB was concerned about two-sided risks to the start of rate hikes: They want to leave the optionality to act quickly if the situation determines, but also didn't want the market to think it was precommitting to raising rates as soon as asset purchases ended. However, they also wanted to convey it probably wouldn't be a "long gap".
  • Overall the Accounts have lots of discussion of flexibility, and seem to downplay the weighting given to the staff projections. The latter will be interesting to watch in future Accounts. It has generally been reported that there is disquiet amongst members on the importance of the forecasts, but Lane had said here that they were already outdated given the timing of the start of the Ukraine war.
  • Markets have taken the Minutes as the ECB will probably be more proactive. Dec-22 Euribor futures are down 5 ticks on the release, with a bigger move lower for the Dec-23 contract. Bund futures also fell over 50 ticks an are approaching yesterday's low of 156.84, below which support comes in at 156.05/00. the Maarch 29 low/round number support.
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