The ECB has confirmed a tightening strategy but has not ruled out anything-April 14, 2022 16:01

* Purchase end is still scheduled for Q3

* Expected rate hike after “after a while”

* Calendar is not accurate yet

* Lagarde emphasizes the importance of flexibility

(With press conference, context, commentary)

By Balazs Koranyi and Francesco Canepa

Frankfurt, April 14 (Reuters)-The European Central Bank (ECB) confirmed its intention to end market bond purchases in the third quarter on Thursday, but showed no new signs of a monetary tightening schedule, Ukraine Uncertainty associated with the war in.

The lack of clarity in guidance given in March pushed down eurozone government bond yields and single currencies as investors downgraded the likelihood of a sharp rise in interest rates by the end of the year.

“We maintain flexibility in choices, step-by-step approaches and implementation of monetary policy,” ECB President Christine Lagarde said in an online press conference.

She was talking from home because she hasn’t fully recovered from COVID-19 yet.

She explained that bond purchase suspensions can occur at any time from the beginning to the end of the third quarter, and the moment the ECB begins to raise rates is not fixed, and the top-notch hike from the end of the purchase is ” It can last from a week to a few months.

“We will deal with interest rates when the time comes,” she insisted.

The ECB is one of the most cautious central banks in the world, as several central banks, including the Federal Reserve Board (FRB) and the Bank of England, have already begun to raise interest rates to stop price hikes. It continues to exist.

Over the past two days, the Bank of Canada, the Reserve Bank of New Zealand and the Central Bank of South Korea have raised major interest rates by 0.5 percentage points for the first two and a quarter for the third.

The Federal Reserve could raise rates by at least eight times over the next two years, according to its own forecasts.

War in Ukraine complicates ECB mission

Christine Lagarde noted that 19 eurozone countries have been particularly exposed to the effects of the conflict in Ukraine, undermining and increasing tensions in the supply chains already tested by the pandemic.

After these declarations, the money markets rose only about 60 basis points by the end of the year at the ECB’s deposit rate (currently set at -0.5%), but started the day at 70 points.

“Europe’s recession is already our baseline scenario, but its size and duration will depend on the nature of the new sanctions against Russia,” said Anna Stapunitzka, an economist at Fidelity International. The ECB’s priority will probably shift from high inflation to effort: trying to limit the economic and financial tensions associated with the Ukrainian war. ”

The ECB has nearly € 5 trillion in public and private debt since 2014 as part of a “quantitative easing” strategy aimed at reviving long-declining inflation as well as supporting credit. I bought.

But things have changed in recent months since soaring energy prices and many raw materials have raised inflation in the euro area to 7.5%. This is an unprecedented level in the history of a single currency.

The ECB will take time to acknowledge that this inflation surge is not just temporary, but that it must respond to the threat of long-term inflation stagnation expressed by certain members of the board. I did.

Inflation “five years ahead”, a barometer of investor expectations for long-term price movements, far exceeds the ECB’s current 2% target, reflecting doubts about the reliability and effectiveness of the ECB’s strategy. It exceeds. EUIL5YF5Y = R

In the market, 10-year German Bund yield

DE10YT = RR fell to 0.751% after the ECB’s press release was released, but began to rise again in the middle of the afternoon to 0.819%.

In the foreign exchange market, the euro, on the contrary, expanded its loss against the dollar to 1.0766 (-1.09%) EUR = and the stock market index EuroStoxx 50 .STOXX 50E rose 0.55%.

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(Report written by Barazs Koranyi and Francesco Canepa, Marc Jones, edited by French versions of Marc Angrand, Jean-Michel Bélot and Bertrand Boucey)