LONDON (Reuters) – The European Central Bank cut support for the euro zone economy by another notch on Thursday but promised copious support for 2022, confirming its relaxed inflation view and indicating that any exit from ultra-easy policy will be slow.
Germany’s 10-year Bund yield, already pushed up by a surprise Bank of England rate hike, was up 4 basis points on the day at -0.32% and Italian 10-year yields were up 8 bps.
Below is the reaction from analysts to the latest move:
SIMON HARVEY, SENIOR STRATEGIST, MONEX EUROPE
“ECB reveals a modest bridge between PEPP and APP. After a major hawkish surprise from the Bank of England, the European Central Bank’s decision was more in line with market expectations.
“(The decision) comes on the hawkish side of expectations as it was unknown whether the ECB would actually announce a bridging mechanism for once PEPP expires, given the uncertainties around Omicron and the recent lockdown measures in several eurozone countries.”
ARNE PETIMEZAS, AFS GROUP
“Pandemic QE ends as expected in March 2022. There is also a strong hint that the tiering multiplier will be increased by the middle of next year. That means that the ECB will use tiering to manage the decline in the balance sheet once banks start to repay the TLTROs in June of 2022. All in all, I call it a dovish surprise.”
TD SECURITIES
“The decision provides markets with more clarity than many were expecting today, with the APP relatively nailed down through 2022. The hawkish messaging does suggest an end to the APP sometime in 2023, with rate hikes following shortly thereafter.
“Going into the press conference at 8:30am ET, we’ll look for further elaboration on how President Lagarde sees the APP evolving into 2023 and what that might mean for rates, including watching for any pushback on rate hikes in 2022. The December Staff projections will also be published, and we look for 2024 inflation of 1.8%, underscoring the need for the ECB to maintain a persistent policy presence going forward.”
HUSSAIN MEHDI, MACRO AND INVESTMENT STRATEGIST AT HSBC ASSET MANAGEMENT
“Following hawkish outcomes at the BoE and Fed meetings, the ECB has opted for a more dovish approach in the context of Omicron uncertainty, maintaining a flexible approach to asset purchases in 2022 with the added implication that rate hikes remain a long way off.”
ABN AMRO
“Overall, the end of the PEPP is cushioned by a longer period of reinvestments under the PEPP and a stepped up APP that will likely run through 2022.
“In addition, its 2024 inflation projection (which we expect to be slightly below target – to be published shortly) will signal a longer period of unchanged policy rates. Overall, this amounts to a very dovish taper. “
(Reporting by London finance and markets team; Compiled by Sujata Rao)
