On Thursday (October 28), the European Central Bank announced its latest interest rate resolution, maintaining the three key interest rates unchanged, in line with expectations. At the same time, it was announced that the scale of PEPP will remain unchanged at 1.85 trillion euros, and the APP debt purchase rate will remain unchanged at 20 billion euros per month.
It is worth noting that the ECB's policy statements and forward-looking guidance have hardly undergone significant changes. Regarding the PEPP bond purchase plan, the European Central Bank stated that the current pace of bond purchases under PEPP has slowed down compared with the previous two quarters; the future expansion of the PEPP investment portfolio will try to avoid conflicts with appropriate monetary policy stances.
In terms of inflation, the European Central Bank said that the current inflation has progressed. The current interest rate is low. Inflation may slightly exceed the transitional target, but it can adjust all tools to stabilize inflation at 2%.
At a press conference at 20:30 Hong Kong time, President Lagarde stated that the eurozone continues to recover strongly, economic risks are roughly balanced, and shortages of raw materials and labor hinder production. The European Central Bank is prepared to adjust all tools as needed, and economic recovery depends on the progress of the epidemic and vaccination.
Regarding inflation, Lagarde said that inflation is expected to rise. Further, the period of rising inflation will last longer than expected, and inflationary pressures will ease in 2022. It is correct to think that inflation is temporary, and the medium-term inflation rate will likely be lower than the target.
Regarding issues such as the energy crisis and supply chain, Lagarde pointed out that rising energy prices may reduce purchasing power and significantly extend the delivery time. Supply constraints will shadow the (economic) outlook for the next quarter, and targeted coordination is required—fiscal policy.
Gradually resuming full-load work will help wage growth, while the risks of tight supply and rising energy prices pose risks to the near-term (economic) outlook, and corporate loans are still moderate.
European Central Bank President Lagarde: The market's bet on raising interest rates does not comply with policy guidelines. Slowing down the purchase of PEPP is not reducing debt. There are good reasons to believe that PEPP will end in March, and the conditions for raising interest rates have not been met. Without discussing the spillover effects of the decisions of the Bank of England and the Federal Reserve, it will take a long time to resolve the supply problem in 2022.
Previously, the European Central Bank Lagarde stated that "the rising period of inflation will last longer than expected." The euro/dollar rose rapidly in the short term, reaching a maximum of 1.1643; this also caused the dollar index to continue to fall, and the lowest fell to the lowest.
Hah believes that European Central Bank President Lagarde's speech is very tough and inflation is no longer temporary, but this sentence was not mentioned in the opening remarks. The European Central Bank still believes that it will take longer for inflation to fall, and the factors that help push up inflation will be alleviated.
Lagarde said in his September speech that the current rise in inflation is mainly caused by temporary factors and that potential price pressures will only gradually increase. Still, these words were not mentioned in this month's speech.
Global foreign exchange macro strategist Viraj Patel: European Central Bank President Lagarde has the task today to reduce market interest rate hike expectations, but she has not acted yet, and both the euro and eurozone bond yields are rising.
Warm reminder: The U.S. dollar hit a one-month low, the euro rose sharply, gold held steady at around 1800, and oil prices rebounded sharply. Please pay attention to the Jintou.com APP for specific operations. The market is changing rapidly, and investment needs to be cautious. The operation strategy is for reference only.