Gloria ai Bastardi - Cap. 1
- Creatore Discussione Dogtown
- Data di Inizio
- Stato
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Forumer storico
Ok grazie
Dogtown
Forever Ultras Ghetto
1. Review of financial, economic and monetary developments and policy options
Financial market developments
Mr Cœuré reviewed the latest financial market developments.
Since the Governing Council’s monetary policy meeting on 13-14 December 2017, the German and the US government bond yield curves had steepened, led by long-term bond yields, after the flattening observed previously. Both real and nominal forces seemed to have contributed to an increase in the term premium, which likely reflected, in part, changes in the expected global supply of and demand for safe bonds, as well as investors’ cautious reappraisal of the risks surrounding the medium-term inflation outlook.
At the same time, inflation risk premia both in the United States and in the euro area remained in, or close to, negative territory. The marked and persistent rise in oil prices and the strong economic backdrop might have contributed to the recent repricing of inflation risk premia at the global level.
The EONIA forward curve showed that there had been a reassessment of the monetary policy outlook in the euro area since mid-December 2017. From the December monetary policy meeting to the day before the release of the account of that meeting, the EONIA forward curve had steepened noticeably. The release of the account had further amplified this trend. The EONIA forward curve also signalled that market participants had brought forward expectations of the first ECB rate hike, although other indicators suggested that this could also be related to a change in market expectations about the end of the asset purchase programme (APP).
In foreign exchange markets, a persistent and broad strengthening of the euro since the December monetary policy meeting prevailed. The current situation was characterised by a combination of a strengthening of the euro and a broad weakness of the US dollar.
Regarding stock markets, the picture for the euro area contrasted somewhat with that for the United States. In the case of the euro area, staff estimates suggested that the cumulative gains over the past year fully reflected improvements in expected earnings associated with the strong economic expansion, while in the United States improved earnings prospects only accounted for a fraction of the gains in 2017.
Turning, in conclusion, to a more structural issue, Mr Cœuré referred to the year-end developments on the repo and the forex swap market. Overall, the repo market had remained resilient, reflecting advance market preparations for the year-end balance sheet constraints. Contrary to the end of 2016, implied rates for transactions covering the 2017 year-end had been closely aligned with realised rates. Market participants had reported that the Eurosystem’s securities lending facilities had also played an important role in relieving tensions. Similarly, in the forex swap market, an increase in the implied US dollar rates covering the 2017 year-end had turned out to be visibly milder than in 2016.
Financial market developments
Mr Cœuré reviewed the latest financial market developments.
Since the Governing Council’s monetary policy meeting on 13-14 December 2017, the German and the US government bond yield curves had steepened, led by long-term bond yields, after the flattening observed previously. Both real and nominal forces seemed to have contributed to an increase in the term premium, which likely reflected, in part, changes in the expected global supply of and demand for safe bonds, as well as investors’ cautious reappraisal of the risks surrounding the medium-term inflation outlook.
At the same time, inflation risk premia both in the United States and in the euro area remained in, or close to, negative territory. The marked and persistent rise in oil prices and the strong economic backdrop might have contributed to the recent repricing of inflation risk premia at the global level.
The EONIA forward curve showed that there had been a reassessment of the monetary policy outlook in the euro area since mid-December 2017. From the December monetary policy meeting to the day before the release of the account of that meeting, the EONIA forward curve had steepened noticeably. The release of the account had further amplified this trend. The EONIA forward curve also signalled that market participants had brought forward expectations of the first ECB rate hike, although other indicators suggested that this could also be related to a change in market expectations about the end of the asset purchase programme (APP).
In foreign exchange markets, a persistent and broad strengthening of the euro since the December monetary policy meeting prevailed. The current situation was characterised by a combination of a strengthening of the euro and a broad weakness of the US dollar.
Regarding stock markets, the picture for the euro area contrasted somewhat with that for the United States. In the case of the euro area, staff estimates suggested that the cumulative gains over the past year fully reflected improvements in expected earnings associated with the strong economic expansion, while in the United States improved earnings prospects only accounted for a fraction of the gains in 2017.
Turning, in conclusion, to a more structural issue, Mr Cœuré referred to the year-end developments on the repo and the forex swap market. Overall, the repo market had remained resilient, reflecting advance market preparations for the year-end balance sheet constraints. Contrary to the end of 2016, implied rates for transactions covering the 2017 year-end had been closely aligned with realised rates. Market participants had reported that the Eurosystem’s securities lending facilities had also played an important role in relieving tensions. Similarly, in the forex swap market, an increase in the implied US dollar rates covering the 2017 year-end had turned out to be visibly milder than in 2016.
Dogtown
Forever Ultras Ghetto
The global environment and economic and monetary developments in the euro area
Mr Praet reviewed the global environment and recent economic and monetary developments in the euro area.
As regards the external environment, global activity had continued to firm, with signs of a cyclical upturn in investment. Growth in global goods imports had slowed in October 2017. However, trade indicators remained relatively buoyant, with the global Purchasing Managers’ Index for new export orders again at a high level in December and above its long-term average.
Despite the increasingly synchronised global upturn, underlying price pressures remained subdued. Annual consumer price inflation in the OECD area had picked up from 2.2% in October to 2.4% in November, reflecting an acceleration in both energy and food prices. Excluding food and energy, OECD annual inflation had remained stable at 1.9%. Inflation remained subdued despite tightening labour markets across advanced economies. Since the Governing Council’s December monetary policy meeting, non-oil commodity prices had increased by 7%. Brent oil prices had risen by 7.5%, standing at USD 69.6 on 23 January 2018. Over the same period, the euro had strengthened both against the US dollar and, to a lesser extent, in nominal effective terms against the currencies of the euro area’s 38 major trading partners.
The economic expansion in the euro area remained solid and broad-based. Euro area quarterly GDP growth in the third quarter of 2017 had been revised up from 0.6% to 0.7% in Eurostat’s third release. Incoming data since the December monetary policy meeting had generally surprised on the upside. Favourable financing conditions, steady income and profit growth, and a robust labour market remained the key factors supporting aggregate demand.
Real private consumption had increased by 0.4% quarter on quarter in the third quarter of 2017, after second quarter growth of 0.6%, continuing to benefit from solid growth in labour income and the low saving ratio. The strength of the labour market expansion was confirmed, with employment in the euro area increasing by 1.7% in the third quarter of 2017 in year-on-year terms. Since the trough in the second quarter of 2013, the number of people employed had increased by 7.4 million. Monthly trade data for extra-euro area goods exports suggested that the external impetus to euro area activity remained solid. Moreover, survey indicators also signalled ongoing strong export dynamics in the near term.
A comparison of forecasts by other public and private institutions revealed that recent revisions to the euro area growth outlook had also been positive in the light of the buoyant data.
Turning to euro area price developments, HICP inflation had decreased to 1.4% in December 2017, from 1.5% in November. This reflected mainly developments in energy prices. Meanwhile, most measures of underlying inflation had lately been lower than in mid-2017 and had yet to show convincing signs of a sustained upward trend. Pressures along the pricing chain remained broadly stable and subdued.
Regarding wages, annual growth in compensation per employee stood at 1.7% in the third quarter of 2017, unchanged from the previous quarter, but up from the low of 1.1% recorded in the second quarter of 2016.
The inflation outlook, as contained in the December 2017 Eurosystem staff macroeconomic projections for the euro area, was comparable with other major forecasts for 2018 but at the lower end of the range for 2019 and 2020. Inflation expectations in the ECB Survey of Professional Forecasters (SPF) for the first quarter of 2018 showed average inflation expectations of 1.5%, 1.7% and 1.8% for 2018, 2019 and 2020 respectively. Compared with the previous survey round, this represented upward revisions of 0.1 percentage point for 2018 and 2019. Longer-term market-based measures of inflation expectations had increased further, in line with the gradual upward trend observed since the middle of 2017. The five-year forward inflation-linked swap rate five years ahead currently stood at 1.78%.
Turning to financial conditions, EONIA forward rates had increased across maturities. At the same time, indices of financial conditions had not changed materially. While the rise in euro area equity valuations implied some loosening, this had been broadly offset by a simultaneous tightening from increases in interest rates and the euro exchange rate. Financing conditions for euro area non-financial corporations (NFCs) continued to be very favourable. The overall nominal cost of external financing for NFCs was estimated to have remained broadly constant at a level of around 4.4%.
Robust monetary dynamics had continued in November, with annual growth in the broad monetary aggregate M3 hovering around 5% since the start of the APP. The gradual recovery in loan growth had also continued. This development had been driven mainly by an increase in the annual growth of loans to NFCs, while the growth of loans to households remained broadly stable. Credit developments continued to be supported by low bank lending rates for NFCs and households. According to the euro area bank lending survey results for the fourth quarter of 2017, credit standards had eased for loans to households, while they had remained broadly unchanged for loans to enterprises. Loan demand had continued to increase across all categories.
Finally, regarding fiscal policies, the euro area fiscal stance, as measured by the change in the cyclically adjusted primary balance, was expected to be mildly expansionary in 2018 and broadly neutral in 2019-20.
Monetary policy considerations and policy options
Summing up, Mr Praet remarked that, while financial conditions had not changed materially since the December 2017 monetary policy meeting, the expected path of short-term interest rates had moved upwards and exchange rate volatility had increased. This reflected, in part, heightened market sensitivity to perceived changes in communication regarding the ECB’s forward guidance. Borrowing conditions for firms and households remained very favourable, in particular in the light of improved macroeconomic prospects.
Incoming information pointed to a further strengthening in the pace of economic expansion. Risks to the growth outlook remained broadly balanced, with some upside risks in the near term. Downside risks continued to relate primarily to global factors, including developments in foreign exchange markets.
At the same time, the economic expansion had not yet translated into higher underlying inflation. Price pressures remained muted and measures of underlying inflation had yet to show convincing signs of a sustained upward trend. However, the acceleration in the cyclical momentum and the ongoing reduction of economic slack strengthened the Governing Council’s confidence that inflation would converge to its aim.
Overall, with inflation convergence proceeding only gradually, patience and persistence in monetary policy remained warranted. An ample degree of accommodation was still needed for inflation pressures to build up and support headline inflation developments in the medium term.
On the basis of this assessment, Mr Praet proposed, at this stage, to reconfirm the decisions taken at the October 2017 monetary policy meeting, including all elements of the ECB’s forward guidance. The strength of the forward guidance rested on the consistency of communication over time.
The Governing Council’s communication therefore needed to: (a) acknowledge the robust pace of the economic expansion; (b) confirm confidence that the upswing would eventually lead to inflation converging towards the ECB’s aim; and (c) reiterate the importance of patience and persistence in monetary policy for inflation pressures to build up and support convergence of inflation to levels below, but close to, 2%.
Looking ahead, the Governing Council would continue to assess progress towards a sustained adjustment in the path of inflation. As previously communicated, its assessment was based on three criteria: first, inflation should be on a path to reach levels below, but close to, 2% over the medium term, and there should be no doubt about the commitment to reach this aim; second, the range of likely outcomes around that path should be reasonably contained; and, third, the path should be maintained even in less supportive monetary policy conditions. Once the Governing Council judged that these criteria were met, net asset purchases would expire in line with the stated forward guidance. From that point in time, the evolution of inflation would remain conditional on the reinvestment of principal payments continuing for an extended period of time and on policy rates remaining at their present levels well past the end of net asset purchases.
Mr Praet reviewed the global environment and recent economic and monetary developments in the euro area.
As regards the external environment, global activity had continued to firm, with signs of a cyclical upturn in investment. Growth in global goods imports had slowed in October 2017. However, trade indicators remained relatively buoyant, with the global Purchasing Managers’ Index for new export orders again at a high level in December and above its long-term average.
Despite the increasingly synchronised global upturn, underlying price pressures remained subdued. Annual consumer price inflation in the OECD area had picked up from 2.2% in October to 2.4% in November, reflecting an acceleration in both energy and food prices. Excluding food and energy, OECD annual inflation had remained stable at 1.9%. Inflation remained subdued despite tightening labour markets across advanced economies. Since the Governing Council’s December monetary policy meeting, non-oil commodity prices had increased by 7%. Brent oil prices had risen by 7.5%, standing at USD 69.6 on 23 January 2018. Over the same period, the euro had strengthened both against the US dollar and, to a lesser extent, in nominal effective terms against the currencies of the euro area’s 38 major trading partners.
The economic expansion in the euro area remained solid and broad-based. Euro area quarterly GDP growth in the third quarter of 2017 had been revised up from 0.6% to 0.7% in Eurostat’s third release. Incoming data since the December monetary policy meeting had generally surprised on the upside. Favourable financing conditions, steady income and profit growth, and a robust labour market remained the key factors supporting aggregate demand.
Real private consumption had increased by 0.4% quarter on quarter in the third quarter of 2017, after second quarter growth of 0.6%, continuing to benefit from solid growth in labour income and the low saving ratio. The strength of the labour market expansion was confirmed, with employment in the euro area increasing by 1.7% in the third quarter of 2017 in year-on-year terms. Since the trough in the second quarter of 2013, the number of people employed had increased by 7.4 million. Monthly trade data for extra-euro area goods exports suggested that the external impetus to euro area activity remained solid. Moreover, survey indicators also signalled ongoing strong export dynamics in the near term.
A comparison of forecasts by other public and private institutions revealed that recent revisions to the euro area growth outlook had also been positive in the light of the buoyant data.
Turning to euro area price developments, HICP inflation had decreased to 1.4% in December 2017, from 1.5% in November. This reflected mainly developments in energy prices. Meanwhile, most measures of underlying inflation had lately been lower than in mid-2017 and had yet to show convincing signs of a sustained upward trend. Pressures along the pricing chain remained broadly stable and subdued.
Regarding wages, annual growth in compensation per employee stood at 1.7% in the third quarter of 2017, unchanged from the previous quarter, but up from the low of 1.1% recorded in the second quarter of 2016.
The inflation outlook, as contained in the December 2017 Eurosystem staff macroeconomic projections for the euro area, was comparable with other major forecasts for 2018 but at the lower end of the range for 2019 and 2020. Inflation expectations in the ECB Survey of Professional Forecasters (SPF) for the first quarter of 2018 showed average inflation expectations of 1.5%, 1.7% and 1.8% for 2018, 2019 and 2020 respectively. Compared with the previous survey round, this represented upward revisions of 0.1 percentage point for 2018 and 2019. Longer-term market-based measures of inflation expectations had increased further, in line with the gradual upward trend observed since the middle of 2017. The five-year forward inflation-linked swap rate five years ahead currently stood at 1.78%.
Turning to financial conditions, EONIA forward rates had increased across maturities. At the same time, indices of financial conditions had not changed materially. While the rise in euro area equity valuations implied some loosening, this had been broadly offset by a simultaneous tightening from increases in interest rates and the euro exchange rate. Financing conditions for euro area non-financial corporations (NFCs) continued to be very favourable. The overall nominal cost of external financing for NFCs was estimated to have remained broadly constant at a level of around 4.4%.
Robust monetary dynamics had continued in November, with annual growth in the broad monetary aggregate M3 hovering around 5% since the start of the APP. The gradual recovery in loan growth had also continued. This development had been driven mainly by an increase in the annual growth of loans to NFCs, while the growth of loans to households remained broadly stable. Credit developments continued to be supported by low bank lending rates for NFCs and households. According to the euro area bank lending survey results for the fourth quarter of 2017, credit standards had eased for loans to households, while they had remained broadly unchanged for loans to enterprises. Loan demand had continued to increase across all categories.
Finally, regarding fiscal policies, the euro area fiscal stance, as measured by the change in the cyclically adjusted primary balance, was expected to be mildly expansionary in 2018 and broadly neutral in 2019-20.
Monetary policy considerations and policy options
Summing up, Mr Praet remarked that, while financial conditions had not changed materially since the December 2017 monetary policy meeting, the expected path of short-term interest rates had moved upwards and exchange rate volatility had increased. This reflected, in part, heightened market sensitivity to perceived changes in communication regarding the ECB’s forward guidance. Borrowing conditions for firms and households remained very favourable, in particular in the light of improved macroeconomic prospects.
Incoming information pointed to a further strengthening in the pace of economic expansion. Risks to the growth outlook remained broadly balanced, with some upside risks in the near term. Downside risks continued to relate primarily to global factors, including developments in foreign exchange markets.
At the same time, the economic expansion had not yet translated into higher underlying inflation. Price pressures remained muted and measures of underlying inflation had yet to show convincing signs of a sustained upward trend. However, the acceleration in the cyclical momentum and the ongoing reduction of economic slack strengthened the Governing Council’s confidence that inflation would converge to its aim.
Overall, with inflation convergence proceeding only gradually, patience and persistence in monetary policy remained warranted. An ample degree of accommodation was still needed for inflation pressures to build up and support headline inflation developments in the medium term.
On the basis of this assessment, Mr Praet proposed, at this stage, to reconfirm the decisions taken at the October 2017 monetary policy meeting, including all elements of the ECB’s forward guidance. The strength of the forward guidance rested on the consistency of communication over time.
The Governing Council’s communication therefore needed to: (a) acknowledge the robust pace of the economic expansion; (b) confirm confidence that the upswing would eventually lead to inflation converging towards the ECB’s aim; and (c) reiterate the importance of patience and persistence in monetary policy for inflation pressures to build up and support convergence of inflation to levels below, but close to, 2%.
Looking ahead, the Governing Council would continue to assess progress towards a sustained adjustment in the path of inflation. As previously communicated, its assessment was based on three criteria: first, inflation should be on a path to reach levels below, but close to, 2% over the medium term, and there should be no doubt about the commitment to reach this aim; second, the range of likely outcomes around that path should be reasonably contained; and, third, the path should be maintained even in less supportive monetary policy conditions. Once the Governing Council judged that these criteria were met, net asset purchases would expire in line with the stated forward guidance. From that point in time, the evolution of inflation would remain conditional on the reinvestment of principal payments continuing for an extended period of time and on policy rates remaining at their present levels well past the end of net asset purchases.
Dogtown
Forever Ultras Ghetto
It was also pointed out that the bilateral exchange rate of the euro against the US dollar had changed more than the euro’s nominal effective exchange rate. This had led market participants to attribute recent exchange rate volatility more to the weakness of the US dollar than to the strength of the euro. However, explaining the US dollar weakness was not straightforward, given the strength of recent data releases and the fiscal and monetary policy outlook in the United States. This also had to be taken into account when considering the consequences of the exchange rate appreciation for the euro area economy. In addition, an appreciation relative to an invoicing currency such as the US dollar could be more important for the strength of the pass-through than suggested by its weight in the effective exchange rate.
The effect on the euro area economy would also depend on the extent and persistence of the exchange rate appreciation. In this context, it was remarked that the euro exchange rate had been subject to pronounced swings in the past and that the rather limited ability of economists to predict future developments in the exchange rate, including the risk of a further euro appreciation, needed to be recognised.
Concerns were also expressed about recent statements in the international arena about exchange rate developments and, more broadly, the overall status of international relations. The importance of adhering to agreed statements on the exchange rate was emphasised, such as that included in the October 2017 communiqué of the 36th meeting of the IMF’s International Monetary and Financial Committee, which stated that excessive volatility or disorderly movements in exchange rates could have adverse implications for economic and financial stability, and that members would refrain from competitive devaluations and would not target their exchange rates for competitive purposes.
Overall, there was broad agreement among members that the recent volatility in the exchange rate of the euro was a source of uncertainty which required monitoring with regard to its possible implications for the medium-term outlook for price stability.
The risks to the euro area growth outlook were assessed to have remained broadly balanced, in line with the assessment made at the previous monetary policy meeting.
The effect on the euro area economy would also depend on the extent and persistence of the exchange rate appreciation. In this context, it was remarked that the euro exchange rate had been subject to pronounced swings in the past and that the rather limited ability of economists to predict future developments in the exchange rate, including the risk of a further euro appreciation, needed to be recognised.
Concerns were also expressed about recent statements in the international arena about exchange rate developments and, more broadly, the overall status of international relations. The importance of adhering to agreed statements on the exchange rate was emphasised, such as that included in the October 2017 communiqué of the 36th meeting of the IMF’s International Monetary and Financial Committee, which stated that excessive volatility or disorderly movements in exchange rates could have adverse implications for economic and financial stability, and that members would refrain from competitive devaluations and would not target their exchange rates for competitive purposes.
Overall, there was broad agreement among members that the recent volatility in the exchange rate of the euro was a source of uncertainty which required monitoring with regard to its possible implications for the medium-term outlook for price stability.
The risks to the euro area growth outlook were assessed to have remained broadly balanced, in line with the assessment made at the previous monetary policy meeting.
Dogtown
Forever Ultras Ghetto
Dogtown
Forever Ultras Ghetto
Monetary policy decisions and communication
Taking into account the foregoing discussion among the members, on a proposal from the President, the Governing Council decided that the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility would remain unchanged at 0.00%, 0.25% and -0.40% respectively. The Governing Council continued to expect the key ECB interest rates to remain at their present levels for an extended period of time, and well past the horizon of the net asset purchases.
With regard to non-standard monetary policy measures, the Governing Council confirmed that the net asset purchases, at the new monthly pace of €30 billion, were intended to run until the end of September 2018, or beyond, if necessary, and in any case until the Governing Council saw a sustained adjustment in the path of inflation consistent with its inflation aim. If the outlook became less favourable, or if financial conditions became inconsistent with further progress towards a sustained adjustment in the path of inflation, the Governing Council stood ready to increase the APP in terms of size and/or duration. The Eurosystem would reinvest the principal payments from maturing securities purchased under the APP for an extended period of time after the end of its net asset purchases, and in any case for as long as necessary. This would contribute both to favourable liquidity conditions and to an appropriate monetary policy stance.
Taking into account the foregoing discussion among the members, on a proposal from the President, the Governing Council decided that the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility would remain unchanged at 0.00%, 0.25% and -0.40% respectively. The Governing Council continued to expect the key ECB interest rates to remain at their present levels for an extended period of time, and well past the horizon of the net asset purchases.
With regard to non-standard monetary policy measures, the Governing Council confirmed that the net asset purchases, at the new monthly pace of €30 billion, were intended to run until the end of September 2018, or beyond, if necessary, and in any case until the Governing Council saw a sustained adjustment in the path of inflation consistent with its inflation aim. If the outlook became less favourable, or if financial conditions became inconsistent with further progress towards a sustained adjustment in the path of inflation, the Governing Council stood ready to increase the APP in terms of size and/or duration. The Eurosystem would reinvest the principal payments from maturing securities purchased under the APP for an extended period of time after the end of its net asset purchases, and in any case for as long as necessary. This would contribute both to favourable liquidity conditions and to an appropriate monetary policy stance.
- Stato
