The old tune of the monetary policy decision was replayed, in line with market expectations. Compared with the July meeting, the September monetary policy decision remained unchanged. The main content is 4 points: 1. Restatement to keep the key interest rate unchanged; 2. Continue to promote the total amount of 1.35 trillion Euro PPEP (Pandemic Assets) Purchase emergency plan). As of September 4, the PPEP position on the balance sheet of the European Central Bank was 512.3 billion euros, and the average weekly net position increased by about 15 billion euros. This is currently the main source of the ECB’s balance sheet expansion; 3. APP ( Asset purchase plan) will advance at a rate of 20 billion euros per month, and an additional temporary purchase plan of 120 billion euros can be added before the end of the year; 4. Continue to provide sufficient liquidity through refinancing operations.

Lagarde’s introductory statement has three main highlights. The first is that her statement on the recent economic situation in the Eurozone is somewhat different from the July meeting: 1. Pay attention to the uncertainty brought by the epidemic. It was mentioned that the continuity and intensity of the recovery are “highly dependent” on the development of the epidemic. We have had a lot of discussions about the epidemic in the euro area, and it is currently in a state of constant increase in single-day fatality rate control. In the short term, if we can see the inflection point of new cases in a single day and the fatality rate is still low, we can have more optimistic expectations for the sustainability of the euro zone recovery; 2. The certainty of external demand is increasing, and the European Central Bank believes that global fundamentals It is constantly being repaired. The forecast of the euro zone’s external demand growth in 2020 has risen from -15.1% in June to -12.5%; 3. The recovery of the service industry is obvious, but the momentum has begun to weaken, and the rising unemployment rate has dragged down consumption.

The second point worth noting is that the European Central Bank’s economic forecast for the euro zone in 2020 is more optimistic than in June. ECB revised the 2020 real GDP growth forecast (the June forecast in parentheses, and the growth rate is the chain growth rate) to -8.0% (-8.7%), private consumption -8.0% (-7.8%), fixed capital formation -12.3% (-15.5%), exports-13.7% (-13.6%), imports-11.7% (-12.0%), unemployment rate 8.5% (9.8%). Among them, the contraction and expansion of private consumption is caused by the combination of forced savings and preventive savings. The large-scale decrease in the unemployment rate is because the European Central Bank has noticed that many unemployed people have become “inactive” because of the lack of job opportunities. Therefore, the increase in the unemployment rate is underestimated.

The third point to note is that the European Central Bank mentioned “will pay attention to the impact of the appreciation of the euro on the medium-term inflation level”, but did not take actual action. The European Central Bank’s forecast of the Eurozone’s HICP for 2020 will remain unchanged at 0.3%, and will increase it by 0.2% to 1.0% in 2021, and maintain it at 1.3% in 2022. The forecast report Central and European Central Bank’s assumption of the euro exchange rate in 2020 is 1.14, 2021- The assumption for 2022 is 1.18. Therefore, even if the euro exchange rate is currently appreciated from 1.14, it does not deviate from the European Central Bank’s medium-term assumptions. Also, based on the assumption of the 1.18 exchange rate, the euro zone’s future economic expectations are still optimistic, so no intervention by the European Central Bank is seen. Motivation.

Regarding the future trend of the euro exchange rate, we believe that the core is the comparison of the strength of the recovery in the United States and Europe and the marginal changes in Fed policy. Under current data, the U.S. recovery trend is better than that of Europe. It has not been falsified. At the same time, the Fed has no incentive to continue to increase easing. If the euro/dollar exceeds 1.18 for a long time, it may cause a major blow to the weak Eurozone inflation data. At that time, whether it is the deterioration of economic expectations caused by weak exports and the risk of deflation or the intervention of the European Central Bank, it will not be a factor supporting the long-term strength of the euro.