After unprecedented stimulus, the European Central Bank is set for a change of focus
- Inflation in the euro area is close, if not at, record lows and the ECB’s December staff projections also notched a new low.
- On top of that comes the euro’s recent strength which is an additional drag on inflation.
- The single currency is currently trading near $1.2119 but was closer to $1.10 before the onset of the coronavirus pandemic.
“Preserving favorable financing conditions over the pandemic period.”
Those are the words from the European Central Bank that are likely to come to the fore over the next few months, as the Frankfurt-based organization changes tact after bolstering its 1.85 trillion-euro stimulus package in December.
“The ECB is trying to shift the market’s focus from yields to financial conditions,” said Mark Wall, the chief economist at Deutsche Bank, in a research note last week.
“The more convinced the ECB is that bank-based financial conditions indicators are improving sustainably, the less sensitive the ECB is likely to be about a rise in yields.”
Reference: CNBC
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