Andrew Mulliner, Portfolio Manager Global Bonds, shares his views on the outcome of today’s European Central Bank meeting, which as he explains was expected to be the hors d’oeuvre of the ECB’s policy review; in reality it was more akin to a notification that the ECB would be cooking dinner.

 Key takeaways:

  • The European Central Bank meeting on Thursday 23 January concluded as expected; rates were left unchanged*, while the press statement was also mostly unchanged from the previous one, save for some upside tweaks to the language on growth and inflation
  • For the ECB specialists, this meeting was all about the announcement of its strategic review; but here the details were disappointingly thin on the ground and we are unlikely to learn much more until the conclusion of the review at the end of 2020
  • A noteworthy aspect of today’s meeting was the prevalence of climate change related questions, which will form part of the ECB’s strategic review

 *Main refinancing operations, interest rates on the marginal lending facility and the deposit facility remain unchanged at 0.00%, 0.25% and ‑0.50% respectively.

 

As had been expected, today’s meeting was long of future revelations and strategic changes and short of action. European Central Bank (ECB) President, Christine Lagarde, who took over from Mario Draghi in November 2019,  played the press conference with a straight bat, presenting a statement that was mostly unchanged from the previous meeting, save for some marginal upside tweaks to the language on expected growth and inflation. However, risks remain tilted to the downside and the ECB remains committed to its current course of accommodative policy for the foreseeable future and focused on ensuring that policy continues to provide support to the euro area economy.

For the ECB specialists, this meeting was all about the announcement of the ECB’s strategic review. However, here the details were disappointingly thin on the ground during the press conference and not much better from the press release that followed. In fact, President Lagarde’s only admission during the press conference was the salient point from the press release — that the policy review would be all encompassing — assessing how they deliver on their mandate, how they measure against it, how they communicate and the tools they use, as well as financial stability and environmental concerns. The reality is that we are unlikely to learn a huge amount more until the conclusion of the review at the end of 2020.

Another noteworthy aspect of today’s meeting, was the prevalence of climate change related questions. Climate change will form part of the strategic review and, certainly if today’s conference was anything to go by, we should expect more questions and discussion as to how central bank policy can impact on climate change and promote greener policies.

Markets have rallied strongly, but whether that’s ‘steady as they go’ central bank policy (no major changes for one year until the review is concluded, ie, quantitative easing and low rates for the foreseeable future) or reflective of the broader risk-off move we are seeing in markets, is up for debate.

All told, today’s meeting was expected to be the hors d’oeuvre of the ECB’s policy review; in reality it was more akin to a notification that ECB would be cooking dinner. Possibly disappointing, but then it was meant to be a meeting for the specialists.