ECB Reveals What Markets Are Telling Them Before Each Decision
The European Central Bank has just revealed an unprecedented insight into how officials monitor that their policy message is understood by financial markets.
Economists and strategists questioned in May predicted that the institution’s pandemic bond-buying program will end in March, regular asset purchases will continue through 2023, and interest rates will rise in 2024, according to the institution’s newly released Survey of Monetary Analysts, published for the first time on Friday.
The compilation of forecasts has been studied at Governing Council decisions ever since a pilot phase started some two years ago. Officials determined in February that its test round had been a success, paving the way for its subsequent release.
Policy makers opted last week to maintain a “steady hand” in providing monetary stimulus, keeping up an accelerated pace of bond buying to ensure financing conditions remain favorable. Before the meeting, some officials had suggested a slowdown in purchases, an idea ECB President Christine Lagarde argued was “too early and premature.”
Philip Lane, the ECB’s chief economist, argued in a Bloomberg Television interview on Thursday that even September might be too early for a decision to unwind support.
The ECB’s survey -- conducted May 25-28 -- shows economists expected 1.79 trillion euros ($2.1 trillion) of its 1.85 trillion-euro crisis program to be spent until net buying stops, with maturing debt rolled over until the end of 2023.
That outlook matches the plan that officials have communicated to investors. Reinvestments under the older quantitative-easing plan were seen lasting through 2025.
Respondents said there’s a 90% chance that the next change in the deposit rate, currently at -0.5%, will be an increase. They predicted a 10 basis-point hike in the second quarter of 2024, some six months after the end of asset purchases.
The ECB has pledged to keep buying bonds until “shortly before” interest rates will start to rise.
Economists were slightly more optimistic than central bank staff on the medium-term outlook for inflation, seeing faster price growth in 2023 that will further accelerate. The survey covers a period that exceeds the institution’s own projections.
The ECB selects respondents from financial institutions participating in its market contact groups. They include global banks such as Goldman Sachs Group Inc. and Morgan Stanley, and national lenders such as Deutsche Bank AG, Societe Generale SA and Intesa Sanpaolo SpA.
The survey is conducted eight times a year before each Governing Council policy meeting. Lane also holds regular talks with a group of monetary analysts from participating institutions.
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