The European Central Bank pledged on Thursday to keep interest rates at record lows for even longer to help sluggish inflation in the euro zone rise back to its elusive 2% target.
The euro and bond yields edged lower, while euro zone bank stocks briefly ticked up after the statement.
For a text of the ECB statement:
COMMENTARY:
KONSTANTIN VEIT, PORTFOLIO MANAGER, PIMCO
“Similar to the Bank of Japan’s inflation overshooting commitment, the ECB’s reference to transitory overshoots probably won’t durably impress markets given the long history of missing the previous, more conservative definition of price stability.
“In September we believe the ECB will start to prepare for an end of PEPP and an upsize of the regular APP in 2022, to maintain easy financing conditions beyond the end of the pandemic emergency policy measures, as progress towards the inflation objective remains inadequate.
“The question of how the ECB envisions to achieve an even more ambitious target with the same old tools and configurations remains unanswered.
CHRISTOPH RIEGER, HEAD OF RATES AND CREDIT RESEARCH, COMMERZBANK
“Overall, this…is still as expected and should give the ECB plenty of reasons to delay any monetary tightening. The long-end (of the yield curve) could be vulnerable as some outside hopes for addressing QE differently did not materialise.”
CHRIS SCICLUNA, HEAD OF RESEARCH, DAIWA CAPITAL MARKETS
“The conditions for leaving rates unchanged may also imply a transitory period of inflation moderately above target that, again, suggests it is a tolerance rather than a desire to push inflation above the target.”
MAXIMILIANO MAXIA, SENIOR FIXED INCOME SPECIALIST, ALLIANZ GLOBAL INVESTORS
“It was a very accommodating statement. In the press conference, I believe the answers about the PEPP and how this can be modified and rebalanced will be very important. The expectations are for more dovish comments.”
SEBASTIEN GALY, SENIOR MACRO STRATEGIST, NORDEA ASSET MANAGEMENT
“The ECB has reinforced its guidance as expected to give itself leeway before raising rates. None of this will surprise much the market though it reinforces a tendency to increase duration and credit risk.”
SEEMA SHAH, CHIEF STRATEGIST, PRINCIPAL GLOBAL INVESTORS
“Unfortunately, the ECB statement was very flat, simply relying on a series of adverbs to drive home its dovish shift. If the press conference follows suit, markets may be severely disappointed.”
“In truth though, Lagarde is unlikely to let this opportunity go. She recognises that the ECB’s credibility has to be earned and will likely use the press conference to emphasise their inflation tolerance. Even so, the ECB will likely fall short of the Fed’s efforts – partially reflecting simmering disagreements within the Council which holds them from making fundamental change, as well as an ingrained reluctance to embrace a new, healthy inflation paradigm.”
CARSTEN BRZESKI, SENIOR ECONOMIST, ING BANK
“This was a bit like old wine in a new bottle; the communication has changed somewhat but in terms of substance the ECB remains very dovish, putting a cap on any tapering speculations.”
PIET HAINES CHRISTIANSEN, CHIEF STRATEGIST, DANSKE BANK, COPENHAGEN
“This is more aligned to the new strategy outcome rather than a new policy signal. I note the wording on bond buying is unchanged.
“The forward guidance is a bit more dovish and allows more easy policy. The recalibration is about the duration of support rather than the size of the support.”
XIAN CHAN CHIEF INVESTMENT OFFICER ,WEALTH MANAGEMENT, HSBC
“The language used by the ECB is now more forceful, in the sense that it is tying interest rates to its 2% target to show its strength.”
“This is a key development the ECB needed to make because markets going into the meeting were unconvinced it could successfully stimulate activity and inflation….The bank really needed to show how it could be more ‘forceful or persistent’ around forward guidance and it didn’t disappoint.
“This news should be a short-term positive for European stocks and the overall recovery trade, providing additional support especially amidst rising nerves over the Delta variant. The strong signal that the ECB will be keeping rates lower for longer is also an indication that the euro could trade lower.”
(Reporting by London markets and finance team and Krisztian Sandor in Frankfurt; compiled by Sujata RaoEditing by Tomasz Janowski)
