The European Central Bank renewed its commitment to slow asset purchases throughout the year. While the deposit rate is left unchanged at -0.5% as expected; The Bank maintained its guidance on interest rates until the conditions for rate hikes are met, saying that interest rates will remain at current or lower levels. Highlights from the ECB statement;
· Net purchases under the pandemic program will end in March.
· APP speed will increase to €40 billion in 2Q22 and €30 billion in 3Q22. It will then be withdrawn to €20 billion per month as of 4Q22.
· Deposit and main refinancing rates remained at -0.5% and 0%, respectively.
· Interest rates will not increase until forecasts show inflation at 2% sustainably.
· PEPP reinvestments will continue until the end of 2024.
Markets want to know if the ECB has changed its outlook on inflation after the recent increase in January inflation surprises. For this reason, the tandance from the Lagarde speech will be watched carefully. Frankly, there is no nuance other than expectations in the main policy text of the ECB. As of March, we will have come to the end of PEPP and the economy will be given reinforcements in terms of APP in a short time. Towards the end of the year, a gradual reduction will be made on the APP side as well.
In terms of inflation, the highest levels have been experienced since the introduction of the euro. In this case, the ECB still adheres to its “temporary” guidance and 2% inflation stability. It is clear that it is not as aggressive as the Fed and will not be exhibited due to different economic growth / policy dynamics. The Fed also wants to improve the price balance, which is caused by broad policy and intense pandemic public support. In wages, the ECB and BOE actually do not see a spiral as high as the Fed.
BOE increased interest rates by 25 basis points at its meeting today. The distribution of votes of some of the members shows that an increase of 50 basis points was not left off the table at the meeting. A central bank that will take action more quickly will cause the equilibrium interest rate to be formed at the end of the year to be higher. We see that the expectations regarding the Fed’s rate hikes are shifting towards faster tightening and there is still a 25 or 50 debate for March. With the ECB’s rate hike this year, it means that the main economies are lagging behind in the eyes of the central banks compared to the counterparties and that the interest rate differentials increase. The initial reaction is in the direction of the quiescent ECB, we will try to strike a different balance in the Lagarde speech.
Kaynak Tera Yatırım-Enver Erkan
Hibya Haber Ajansı