Some policymakers fear an overshoot of inflation
At the European Central Bank (ECB) monetary policy conference held in July, policymakers called attention to the need to amend their progress guidance on interest rates.
Concerns have been reported among those making decisions in the ECB about the potential overshoot from the 2% inflation target, or the possibility of making long-term commitments that could undermine its reliability.
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The bank officials agreed to a compromise that would commit long-term commitments at unchanged or low interest rates. The first hike of the rate is linked to a stronger and sustained rise in inflation.
“The majority of the members have shown they can support the revised Proposal of Progress Guidance,” the account stated. “At the same time, a small number of members supported their reservations as the revised formulation did not adequately address their concerns.”
Commenting on the ECB meeting, he revised the advance guidance on interest rates, said Shane O’Neill, Interest Rate Director for Effective Risk Management: ECB’s chief economist, Philip Lane, has downplayed the economic threat posed by the delta variant and committed to a Pep program that continues until at least March 2022, with the ECB’s role in QE going beyond that. The yield will be increased. Germany’s yields have been its largest one-day journey since March. ”
There was one important takeaway in the market, which was revised advance guidance on interest rates.
“The ECB members led by Lane have reformulated forward guidance on interest rates to include three key points. The governing council should be confident that inflation is durable, and we also have the basics and “We shouldn’t hike interest rates unless we see that inflation has made satisfactory progress at 2%,” O’Neill said.
Immediate market response was very suppressed – EURUSD and 10Y virtually unchanged with release.
“But this seems like positive news for risk assets. The ECB actually does not recognize it as temporary, even in the face of increasing inflation. It is actually built into the buffer so that it can be kept institutional. Assets negatively affected by rising inflation could be subject to pressure for this rephrase, for example, the US In contrast, that seems like a long way to go in Europe, but for example, the adjustability of change should win and support EUR risk assets.”
This will switch attention to the September ECB meeting on further developments regarding the PEPP program and its future.
