Rates Stay The Same At The European Central Bank

The European Central Bank (ECB) completed a ten-year experiment in absorbing debt throughout the twenty-nation euro zone on Thursday by leaving interest rates constant as anticipated and announcing the early termination of its last ongoing asset purchase program.

The question now is how quickly the ECB will reverse course after unexpectedly benign inflation statistics over the previous six months virtually ruled out additional policy tightening. The ECB increased interest rates to a record high earlier this year.

In an attempt to counter these growing expectations of rate cuts, the ECB stuck to its forecast of stable rates going forward Ma S and did not even hint at policy easing.

Although several conservative policymakers have attempted to counter those expectations in the lead-up to the December meeting, markets, on the other hand, see two cuts by April and 155 basis points of easing in all of 2024.

The focus now shifts to Christine Lagarde, president of the European Central Bank, and her lunchtime news conference. She is anticipated to moderate bets on rate cuts, but she is unlikely to reiterate her earlier forecast of several quarters of stable rates.

After ending the €1.7 trillion Pandemic Emergency Purchase Programme, the European Central Bank (ECB) announced that it will begin decreasing reinvestments in the middle of 2024.

The portfolio will decline by €7.5 billion per month until the end of the year, according to the ECB, after the PEPP’s full reinvestment ends on June 30.

A number of policymakers have stated that the program has achieved its goals and that there is no economic justification for adhering to the original expiration date. Previously, all proceeds from maturing debt in the PEPP were supposed to be reinvested through the end of 2024.

The ECB’s hesitancy was probably caused by its unwillingness to relinquish its principal tool for market stabilization in the event that investors put undue pressure on some countries, especially those with high levels of debt in the Mediterranean region.

The Transmission Protection Instrument (TPI), an unproven bond purchasing program with a far higher deployment threshold, replaces the PEPP, which the ECB may tilt towards specific countries.