The central bank leaves the floodgates open

The ECB reaffirms the loose direction of its monetary policy. American banks recently speculated that there might be a change of course in the summer.

ECB President Christine Lagarde is currently being closely watched by investors in the bond markets in particular: Are there any signs that the outlook is brightening?

Dhe European Central Bank (ECB) has reaffirmed its loose monetary policy. On Thursday after the monthly meeting of the Governing Council, the central bank announced that the PEPP crisis bond purchase program would continue as before until further notice. The central bank also left the key interest rate unchanged.

“As the information received confirmed the joint assessment of the financing conditions and the inflation outlook made at the monetary policy meeting in March, the Governing Council assumes that the purchases under the PEPP will continue at a significantly higher pace in the current quarter than in the first Months of the year “, it says in the declaration of the resolutions.

The euro had risen slightly even before the resolutions were announced. At noon, the common currency cost 1.2056 dollars, a little more than in the morning. The ECB had set the reference rate on Wednesday afternoon at $ 1.2007.

The economist Friedrich Heinemann from the research institute ZEW Mannheim commented: “It is foreseeable that the decision-making in the ECB Council will become much more conflictual than before in the second half of the year.” Ask when the exit from the PEPP crisis program will begin.

At its previous interest rate meeting in March, the ECB announced that it did not want to expand its bond purchases, but wanted to increase the pace, especially with the PEPP crisis program, in the second quarter, i.e. from April onwards. The central bank wanted to react to an increase in yields on the market for government bonds. She wanted to prevent the financing conditions for households and companies from deteriorating prematurely and thus making a recovery from the crisis more difficult. In a few weeks since the previous meeting, bond purchases have been higher, in others they have not.

Goldman Sachs advised shorting long-term bonds

According to its own statements, the central bank wants to “look through” the rise in inflation in the first few months of this year, which is regarded as temporary. After negative values ​​towards the end of last year, the inflation rate for the euro zone was 0.9 percent in January and February and 1.3 percent in March. It is expected that it will increase even more in the course of the year. The ECB argues that the causes are special factors that are related to the Corona crisis. The central bank expects inflation to fall again in the coming year. In the medium term, the central bank is pursuing the goal of inflation of “below, but close to 2 percent”.

The next meeting of the Governing Council in June will discuss the further pace of bond purchases. Recently, there was speculation on the bond markets as to whether there could be any signs of an early exit from bond purchases (“tapering”) or whether the central bank would at least not expand its bond purchases any further. The American investment bank Goldman Sachs had even derived a strategy from this and recommended selling long-term Bunds. Bankhaus Metzler, on the other hand, wrote in a market report that, in its opinion, these expectations were “a little too early”.

Companies expect less inflation than households

Meanwhile, the Bundesbank writes in its current monthly report that the lockdown and the expiry of the VAT cut at the turn of the year slowed the German economy in the first quarter of 2021: “Economic output in Germany decreased in the first quarter of this year.” The Bundesbank reported in detail from a survey, More than 30,000 companies took part in several rounds.

According to the information, they expect an average price increase of 1.5 percent for the next twelve months. For the past twelve months, too, they estimated inflation to be in this range. That was significantly less than the households also surveyed stated: They are expecting an inflation rate of 2.4 percent for the next twelve months and estimated the inflation rate for the past twelve months to be an average of 2.7 percent.

The Bundesbank also asked the companies how much they would have passed on the temporary VAT cut in the past year. A good third stated that they had reduced prices on average across all products to the level of the VAT reduction. More than half, on the other hand, left prices almost unchanged, according to the survey results. Some said it would have been too much effort to change prices for a short time. Others justified the step by saying that they had to improve their corona-related losses.

In addition, around 5 percent of companies replied that they had raised their prices despite the VAT cut. The Bundesbank also writes that the analyzes indicate that the price reductions at the beginning of the VAT cut and the increases thereafter roughly offset each other, so that there is no lasting impact on the overall economic price level.