Eurozone | ECB policy is all about favorable financing conditions

The ECB stayed put at its first meeting of 2021. The council saw developments as in line with its baseline expectations, judged the balance of risks as less tilted to the downside and added a whiff of hawkishness to its policy statement.

What you will learn from this report:

  • This relative optimism looks at odds with the fast spread of the virus and high uncertainty, although the ample ammunition and flexibility imbedded in the ECB’s QE programs should suffice to preserve favourable financing conditions.
  • We  think that the ECB communication implies a soft cap on bond yields and spreads among sectors and jurisdictions. The ECB’s focus appears to be on low and broadly stable real yields, while rising nominal yields on back of higher inflation expectations will likely elicit little response.
  • The virus will continue to determine policies, so despite Lagarde’s slightly optimistic take today odds of further accommodation later this year remain high.

Topics: Europe, Eurozone, ECB, Monetary policy, Coronavirus, Macro, Recovery, Financial conditions

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