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This week in the euro area brings the conclusion of the latest ECB monetary policy meeting on Thursday.
A fresh series of targeted longer-term refinancing operations (TLTRO II) – some of which have yet to be implemented, we certainly do not expect any new initiatives this time around. After the Governing Council last month announced multiple new easing measures – including further rate cuts, a €20bn increase in monthly asset purchases to €80bn.
ECB decided to launch a new series of four targeted longer-term refinancing operations (TLTRO II), starting in June 2016, each with a maturity of four years. These new operations would reinforce the ECB’s accommodative monetary policy stance and will strengthen the transmission of monetary policy by further incentivising bank lending to the real economy.
Counterparties will be entitled to borrow up to 30% of the stock of eligible loans as at 31 January 2016. The interest rate under TLTRO II will be fixed over the life of each operation, at the rate on the Euro system’s main refinancing operations prevailing at the time of take-up.
Of course, the ECB will not be best pleased by the strengthening of the euro, broader tightening of financial conditions and drop in financial market measures of inflation expectations that followed the March meeting.
However, with euro area GDP growth seemingly stable in Q116 close to the 0.3%Q/Q rates of the previous two quarters, inflation surprising on the upside in March, and the oil price up to its highest levels in four months, there will be no sense of panic aroused by recent events.
In addition, Draghi might also be asked to clarify his remarks from the March press conference – which prompted the adverse financial market reaction – that he does not ‘anticipate that it will be necessary to reduce rates further’.
Indeed, since that meeting differing messages have originated from members of the Executive Board with, e.g. Chief Economist Praet emphasising that the ECB has yet to reach the lower bound but Vice President Constancio on Wednesday downplaying the effectiveness of negative rates.
