ECB Policy Unchanged but high degree of uncertainty ahead

The European Central Bank left its monetary policy unchanged on Thursday, as expected, and reiterated that it would continue to provide ample support to the economy as it gradually recovers from the shock of the coronavirus pandemic. The central bank said although the eurozone economy is rebounding there is still a high degree of uncertainty ahead. The following is a selection of analysts' comments.

The German 10-year Bund yield trades at -0.49%, down 1.5 basis points after the European Central Bank's decisions, unchanged from levels before the announcement. In line with expectations, the ECB left its key policy rates as well as the asset purchases unchanged, affirmed that those rates will stay at current or lower levels. It also affirmed that it stands ready to adjust all of its instruments.

The euro edges higher after the European Central Bank maintained its policy measures, as widely expected. The ECB kept all key interest rates, the main asset purchase scheme and the pandemic emergency purchase program unchanged but said it continues to stand ready to adjust all its tools to ensure inflation moves towards its target of just below 2%. EUR/USD is flat on the day at 1.1415, up from 1.1404 before the announcement. ECB President Christine Lagarde holds a press conference on the decision at 1230 GMT.

ECB Policy Unchanged but high degree of uncertainty ahead


As the European Central Bank switches to "wait-and-see" mode for the rest of the summer, the focus shifts towards the EU's Recovery Fund and the long-term budget, says Anna Stupnytska, global macro economist at Fidelity International. The EU's summit this week might not bring a final agreement just yet, but any progress on the most contentious issues, including governance and conditionality, "would send a strong signal on the prospects for the breakthrough in the near future," she says. The ECB left its key policy rates as well as the asset purchases unchanged, affirmed that those rates will stay at current or lower levels, and also affirmed that it stands ready to adjust all of its instruments.

The euro falls after European Central Bank President Christine Lagarde said the monetary authority intends to use the entire EUR1.35 trillion it assigned its coronavirus bond-buying program. Speaking at a press conference after the ECB left its policy measures unchanged, Lagarde said the ECB has recently slowed purchases under the stimulus program due to more stable financial markets and reduced risk of market fragmentation. However, unless there is a "significant upside surprise" to the ECB's macroeconomic forecasts, it would use the full envelope of the pandemic emergency purchase program, she said. Lagarde said economic activity has picked up but is well below pre-coronavirus levels and the outlook remains "highly uncertain." EUR/USD falls to 1.1405 from 1.1422 before the remarks. (renae.dyer@wsj.com)

The European Central Bank is now monitoring the further development of the pandemic and the impact of the measures it has taken previously, says LBBW after the ECB left policy unchanged at Thursday's meeting. Apart from the EUR1.35 trillion Pandemic Emergency Purchase Programme, the ECB has allocated liquidity in almost the same amount as it did with TLTRO-III, LBBW says, referring to the targeted longer-term refinancing operations. "In our opinion, this also shows the dimension of the crisis: slowly but surely the trillion is becoming the common unit of account for the euro at the supranational level," LBBW says.

The European Central Bank's meeting went "pretty much" according to expectations, says Swedbank. The ECB didn't take any new policy measures, but confirmed earlier ones. The main piece of news had to do with the slightly smaller Pandemic Emergency Purchase Programme purchases during summer, Swedbank says, adding that ECB President Christine Lagarde confirmed it is not a summer slowdown, but a reflection of a policy choice. "The baseline is still that the full PEPP will be used even if some Governing Council members have questioned it, but if a more positive scenario materialized the programme is flexible," Swedbank says.

Euro rates near term are set to be driven by any progress at this week's EU Council meeting, while the overall outlook for rates remains dependent on global risk sentiment, says TD Securities after the European Central Bank's monetary policy meeting. The likelihood of reaching an agreement at the EU meeting this week is less likely, with TD Securities' strategists seeing better chances for that later this summer. "Even though the disbursements would start only in 2021, the path for fiscal easing is likely to be a key factor driving the ECB's monetary stance as well," they say.

The European Central Bank's current policies seem to be working, says Nordea's economists after the central bank's monetary policy meeting. They refer to the fact that ECB President Christine Lagarde emphasized the efficiency of the current monetary policy many times during her press conference, while the Governing Council also seems very happy to note that the take-up at the targeted longer-term refinancing operation in June was a record high, Nordea's economics say. "These positive conclusions about the efficiency of the monetary policy probably indicate that without major surprises to the outlook, the ECB will not deviate from its earlier easing path or toolbox dramatically in the coming months," Nordea says.

[source: Newswires]