Columbia Threadneedle: ECB stands alone in its restrictive policy
Columbia Threadneedle: ECB stands alone in its restrictive policy
Dave Chappell, Senior Fixed Income Portfolio Manager at Columbia Threadneedle Investments, comments on today’s European Central Bank meeting.
Bucking the trend of recent signals from the UK and North America, the ECB held firm with its previous guidance, hiking rates by 50bps, and pre-committing to another half point rise at its next meeting in March. From that point it will evaluate the subsequent path of its monetary policy. The outlook was viewed to be less bleak than at the last committee meeting, driven primarily by significantly lower energy costs and rising income.
In contrast, food prices were still climbing, and core inflation, while stable at December’s level, still far too high. Risks to economic growth have become more balanced, as have the risks to inflation, at least in the near term. An external driver for weaker growth could include a deeper global downturn, a risk for higher growth and inflation could be a brisker recovery in China. Internal drivers for weaker growth could be the abrupt tightening of credit conditions for both companies and households.
Although the March meeting appears locked at +50bps, the global conditions may be very different by the time the committee sits down in mid-June. Whilst Lagarde stressed that there was more ground to cover thereafter, the central bank may find itself alone in continuing to take monetary policy further into restrictive territory. The end game seems to be coming into view, and markets have sensed it.”
Please find below a comment by Alex Batten, Fixed Income Portfolio Manager at Columbia Threadneedle Investments, on today’s announcement by the Bank of England:
BoE
Was that the last hike?
The Bank’s forward guidance has been watered down even further. Language around forceful hikes, i.e 50bp or higher, has been removed, and more tightening has been tied to evidence of more persistent inflationary pressures appearing. The Bank have indicated the data they are looking at for this point – wages, services inflation and inflation expectations.
The soft data suggests a significant weakening of the labour market ahead but we suspect this may not come soon enough to prevent one final 25bp hike in March.