Photo: AP/Riccardo De Luca
ORIGINAL: At 7:45 AM, the European Central Bank will make its April monetary policy decision.Investors expect the bank to keep interest rates on hold at 1.00 per cent and ignore calls for a third three-year long-term refinancing operation.
That liquidity operation doled out €1.019 trillion ($1.343 trillion) in cheap cash to commercial European banks and generated much of the euro-area enthusiasm over the last few months.
Regardless of the fact that we’re not likely to see any major changes from the ECB, Barclays analysts say that we could see President Mario Draghi hint at the bank’s future strategy in a press conference following the announcement at 8:30 AM EST. Recent commentary suggest that the ECB is looking to get out of its massive liquidity operations.
Barclay analysts wrote on Monday (emphasis added):
In a recent speech, the President Draghi stressed the difference between different concepts of liquidity, pointing out that the impact on inflation and asset prices comes from a “sustained and strong increase in money and credit” and not from the central bank liquidity per se (i.e. liquidity borrowed at the refinancing operations). At the moment there is no strong evidence of the transfer of central banks’ liquidity in money and credit, as was also evidenced by the February M3 data on bank lending to the economy, which remained weak with only a moderate recovery in the monetary aggregate (although this did not capture the second 3y LTRO)…
The fact that the ECB’s rhetoric has shifted towards the potential inflation risks coming from the abundance of liquidity currently in the system, is probably a signal that it is preparing its gradual exit strategy.
So far, Draghi has seemed willing to alleviate pressure on sovereigns so long as they made fiscal adjustments, but he might be willing to allow pressure to resume amid EU leaders’ foot-dragging.
UPDATE: The ECB surprises no one and leaves interest rates unchanged at 1.00 per cent. Let’s see if we hear anything more at Draghi’s 8:30 AM EST presser. (We’re not holding our breaths.)
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