No change from ECB, the eyes at the EU Summit

No change from ECB, the eyes at the EU Summit

Vakıf Katılım

The European Central Bank (ECB) announced that it will continue the Pandemic Emergency Purchasing Program (PEPP) amounting to EUR 1.35 billion, while not changing interest rates as expected at the July meeting. In the bank's policy statement, it was stated that PEPP helped to balance downward pressures in relation to the pandemic in the expected inflation path. Purchases will continue to run flexibly across asset classes over time. However, until the Bank decides that the coronavirus crisis is over, net asset purchases will be made within the scope of PEPP, which the time interval envisaged by the Central Bank is seen as the end of June 2021 at the earliest.

 

Purchases under the asset purchase program (APP) continue at a monthly rate of 20 billion EUR. The Bank makes its guidance about this program as the APP will be finished before starting to raise interest rates. The refinancing activities within the scope of TLTRO continue, and in this way, excess liquidity is provided, and bank loans are supported to companies and households. Inflation pressures will not return upwards soon, the most effective reason for this will be the weak demand. This means that purchases and low interest rates will not be reversed before 2021.

 

Lagarde's press conference marks the continuation of the cautious view of the economic outlook. On the other hand, the recovery is also pointed out after the bottom of April seen in the data. It should be noted, however, that this recovery took place at a time when the economy was given ample incentives. The biggest handicap of negative deposit rates is known, pointing to risks for the banking sector. Particularly, the decrease in deposits may cause shortage of resources for banks. This means that the desired loan growth is not achieved or external sources, that is, borrowing, which means additional risk. At this point, the most interesting issue was the update that staged interest rates and that the same interest rate would not applied to every segment of the deposit. There is no new information in the content of Lagarde's speech.

 

EU leaders will talk about how to use the budget and the 750 billion EUR rescue fund tomorrow. The main issue is whether the weight of the bailout fund is grants or loans. At this point, the share of budget surpluses should be divided in the proportion of the countries’ size and indebtedness as a grant seems to be the most positive option possible. Because the issue of new borrowing will cause new troubles for both borrowers and creditors.

Source: Tera Menkul
Hibya News Agency