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Original title: Will action next month? ECB minutes release clear signal that chief economist “free the pigeons”
The next meeting of the Management Committee of the European Central Bank is scheduled for 10 December. It is currently widely expected that the European Central Bank will extend and expand its 1.35 trillion yuan scale.EURPlan the purchase of emergency goods and provide banks with longer-term funds The latest minutes of the ECB’s October 28-29 policy meeting released overnight showed officials generally agreed to act.
The minutes of the ECB meeting show that the ECB agreed to act in December and will have to await the results of the December economic forecast, and will not hold back on specific policies before 10 December. European Central Bank officials are awaiting a fiscal response and will evaluate data including the outbreak and exchange rates.
The minutes stressed that, based on the observations, the nominal inflation rate is currently expected to remain negative for a longer period than the September forecast. Officials believe that the outbreak of the epidemic may have a more lasting impact on supply and demand, thereby reducing the potential rate of growth. It cannot be ruled out that a double bottom recession will occur in the euro zone. The European Central Bank predicts that employment will decline further, large numbers of jobs are at risk and inflation will remain at a negative level until early 2021.
Some management committees have expressed doubts about the effectiveness of buying multiple bonds, indicating that the European Central Bank will also consider expanding long-term lending arrangements to banks.
The minutes of the meeting said that the market has stabilized since March and that further asset purchases may not have the same impact on financial conditions and actual economic activity as earlier this year.
In the first wave of the outbreak in March of this year, investors felt the ECB’s initial actions were too cautious to prevent the market from accelerating the collapse. Policymakers seemed to have learned this lesson at the October 29 meeting, as they were increasingly concerned that the second recession could cause permanent damage to the economy.
Since the European Central Bank increased its bond purchases in June, the annual inflation rate has dropped from 0.3% to minus 0.3%. The euro / dollar grew by around 6%. Large-scale stimulus measures are needed to push inflation to a positive level, and further stimulus measures are needed to meet the ECB’s 2% inflation target.
Also, since October, epidemic prevention measures from various countries have hit the eurozone economy, and it is expected to fall into negative growth in the fourth quarter.
Just two weeks before the European Central Bank’s next policy meeting, bank chief economist Philip Lane also said on Thursday that the euro zone economy was starting to show the first signs of financial strain.
“In the recent survey data, there are some worrying signs,” he cited indicators on loans, investments and financing channels for SMEs in his speech on Thursday. “We will adjust our tools appropriately to respond to the changing situation and ensure that financing conditions are still favorable to support the economic recovery.”
Lien said the European Central Bank intends to keep interest rates low during the epidemic and the recovery phase after the current crisis. Lien added: “While positive news about vaccine development in the coming weeks and months will certainly be welcomed, it is crucial that the macroeconomic recovery cannot be affected by the premature steepening of the yield curve.”
According to meeting minutes, Lien expressed concern about the credit survey results at the October meeting, but officials expect to wait for uncertainties including US elections, Brexit and national budget plans to pass before deciding how take the next step.
Eurozone government bond yields fell slightly on Thursday as the dovish message from the chief economist of the European Central Bank and the minutes of the October meeting further confirmed the general market expectation of stimulus measures to be introduced at the next meeting . Bond analysts pay particular attention to what Lien pointed out: “It is very important that the macroeconomic recovery cannot deviate from the track due to the premature steepening of the yield curve.”
The yield on the benchmark 10-year German government bond fell by around 1.5 basis points to minus 0.585%. The main beneficiaries of the support measures of the European Central Bank, including the yields of bonds from southern European countries, fell slightly. Among them, the 10-year Portuguese government bond yield fell to an all-time low of 0.007%, approaching zero for the first time in history.
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