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MNI (London)
     LONDON (MNI) - Greater clarity over the near certain year-end termination
of asset purchases, while reiterating a commitment to keep interest rates low
and a loose monetary stance for a prolonged period, dependant upon the
eurozone's outlook, will be the likely outcome of the European Central Bank's
July 26 Governing Council meeting, sources familiar with the agenda have told
     It will also be an opportunity to reassure financial markets by stressing
that the ECB will be flexible in changing strategy should the inflation target
derail or economic conditions significantly worsen, MNI understands. 
     Coming months will be relatively low-profile for ECB policymakers, as no
debate has officially started within the council over when exactly a first rate
hike could occur, with one Eurosystem source telling MNI that "the decision is
still one to be made, and it will be taken only once we come to that bridge, but
in any case not before next summer". 
     Another senior central bank source has said he feels markets are, currently
at least, correctly pricing a first hike in rates for "around October 2019",
although noting that best practice is not to tie ones hands at too early a
     The ECB appears to have two main aims for the upcoming Council meeting. One
is to give some clarity over the APP after December, when the 3-month tapering
announced in June comes to an end. The other will be leaving the door open to a
somewhat "flexible reading" of when the first rate hike may come, to help soothe
markets, added the first official.
     "The APP is set to terminate, this is certain. Of course, the focus has now
shifted to what will happen post-APP and to interest rates. But there is no
reason for any kind of alarm as monetary conditions are bound to remain
accommodative for an extended period and our strategy will be flexible,"
stressed the first official. 
     Alongside, the ECB will continue to reassure "it stands ready to adjust and
review all its instruments as appropriate to ensure that inflation continues to
move towards its aim in a sustained manner," the source said. 
     The whole Governing Council is unanimous over the commitment to maintain a
loose monetary policy stance, dependant upon economic conditions, and also to
readily intervene and change tactics in the case of a significant worsening of
such conditions, said the Eurosystem source.
     And despite an overall upbeat assessment of the regional economy, there is
certainly a concern amongst sources that conditions could worsen, particularly
if global trade disputes deteriorate further.
     The Eurosystem source recalled how a year ago, the big question that
haunted markets and governments alike was: what would happen once the asset
purchases come to an end.
     "Time and prudence have proven us right," the first official said. "Not
only has there been no earth-shattering repercussions with the June APP-end
announcement, but rates on new long-term bond issuances have decreased and
financial conditions across the bloc have improved". 
     The ECB's confidence, despite the eurozone's economic slowdown in recent
months, is underpinned by the "ammunition" of low rates still being fully
     The second half of the year will thus pave way to a transition phase which
will see the end of APP "counterbalanced" by continued low interest rates used
as a sort of parachute, helping ease the switch to policy normalisation. 
     The summer break will give ECB policymakers some slack from the hectic
activity of recent months and allow them to properly weigh their "strategy mix"
of firmness and flexibility to fully meet their inflation target.
--MNI London Bureau; tel: +44 203-586-2225; email:
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MNI London Bureau | +44 203-865-3812 |