How To Analyze An ECB Press Release


The European Central Bank published its new monetary policy decisions on June 9, 2022. You can find the statement here: ECB – Press Release June 9, 2022

Said in advance, like every Central Bank do, the communication is extremly reserved. Every single word counts, and not a single word is chosen carelessly. Even the Deutsche Bundesbank (German Central Bank), marks and draws attention to the fact that their translation does not correspond in the wording of the original version of the statement1.

Let’s jump in…

“The Governing Council decided to end net asset purchases under its asset purchase programme (APP) as of 1 July 2022.”

Currently, the ECB has been actively purchasing new government bonds under APP (Asset Purchase Programme, since 2014). This will be stopped by the first of July. In simple terms, the money printer will be stopped. However, it doesn’t look quite that bad.

“The Governing Council intends to continue reinvesting, in full, the principal payments from maturing securities purchased under the APP for an extended period of time past the date when it starts raising the key ECB interest rates and, in any case, for as long as necessary to maintain ample liquidity conditions and an appropriate monetary policy stance.”

The ECB will continue to buy new government bonds after July. But only the money that is paid back through PEPP (Pandemic Emergency Purchase Programme, from March to March 2022) or APP will be used. Thus, the amount of money that flows into bond purchases each month will be significantly reduced. It is interesting that the ECB does not specify an end of the reinvestment of APP payments. The reinvestment of PEPP payments will be stopped in 2024: “reinvest the principal payments from maturing securities purchased under the programme [PEPP] until at least the end of 2024″.

This sentence is important:

“In the event of renewed market fragmentation related to the pandemic, PEPP reinvestments can be adjusted flexibly across time, asset classes and jurisdictions at any time.”

The ECB now also speaks publicly about the problems of the euro area. Fragmentation in this context means that southern states in Europe have to pay much more interest on their bonds than northern states. These interest rate differentials are dangerous for the stability of the euro.

The ECB keeps the right to make targeted investments in countries that pay more interest. Basically, it looks like this: Germany pays back its bonds to the ECB. With this money, the ECB buys new Italian government bonds. Is that legal? No, but that’s another topic (More here: Bundesverfassungsgericht).

The obvious, what all the media report is the rate increase.

“Accordingly, and in line with the Governing Council’s policy sequencing, the Governing Council intends to raise the key ECB interest rates by 25 basis points at its July monetary policy meeting. In the meantime, the Governing Council decided to leave the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility unchanged at 0.00%, 0.25% and -0.50% respectively.”

Sources:

  1. Deutsche Bundesbank

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