Central Bank News

ECB maintains course

The recent good economic data combined with the progress in impulses was reflected in increased optimism within the ECB's Governing Council. The clearest sign of this was the change in the assessment of the risk distribution. In addition, ECB economists raised their GDP growth forecasts as well as their inflation forecasts for 2021 and 2022. However, this increased optimism was not yet enough to decide on a reduction in monthly securities purchases under the PEPP program. Thus, the pace of the second quarter will be continued in the third.

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HU: Increase in the policy rate after 10 years

In line with the market consensus and our expectation, the Monetary Council of the MNB increased the policy rate by 30bp, to 0.90%. Both the O/N deposit rate and the O/N lending rate remained unchanged, at -0.05% and 1.85%, respectively. As a result, the interest rate corridor became symmetric again. Both the councils statement and MPC members comments at press conference emphasized that they had launched a cycle of interest rate hikes to ensure price stability and to prevent inflation risks from having long-lasting effects and to anchor inflationary expectations. Policy makers promised monthly tightening steps in a data-driven manner. We continue to think that the peak of the new cycle of rate hikes could be at 1.35-1.50%, however this now seems to be reached at a quicker pace.

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CZ: The CNB tightened monetary policy

At todays meeting, the Czech National Bank increased the main rate by 25 basis points to 0.50%. The decision was expected. During the press conference, the stance of the CNB was very optimistic about the expected pandemic development, in our view. We expect the Czech National Bank to deliver another 1-2 quarter point hikes by the end of the year, conditional on the pandemic development in autumn. We are slightly less optimistic than CNB that signaled a possibility of rate hikes at all four remaining meetings this year. Thus, another hike in August cannot be ruled out.   We see this stance as a relatively big turn, as the tone of the CNB was rather pessimistic during previous months. This fact could slightly appreciate koruna.

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PL: NBP points to exogenous nature of recent inflation surge

National Bank of Poland kept policy rate unchanged at 0.1%. NBP pointed to exogenous and temporary nature of the recently observed increase of inflation in Poland. Headline CPI jumped to 4.8% y/y in May due to rising fuel and food prices. Moreover, higher electricity and waste disposal costs pushed annual inflation up. All in all, inflation is being driven by factors that are outside of the monetary policy scope. As inflation is expected to stay above the upper bound of the central bank’s target until the yearend and likely at the beginning of next year, NBP could deliver a 15bp hike in 4Q21 to anchor inflation expectations.

No change in sight

As expected by the markets, the interest rate-setting body of the US Federal Reserve left monetary policy unchanged. Apart from an adjustment of the description of the latest economic data, there were also no relevant changes in the communiqué. In the subsequent press conference, Fed Chairman Powell confirmed that the signals would continue to point clearly in the direction of an unchanged loose monetary policy for some time.

ECB: Course still vague

As expected, the Governing Council of the ECB did not decide to change monetary policy at yesterday's meeting. President Lagarde had a hard time specifying the outlook for the further development of securities purchases under the PEPP program. How purchases might develop in the third quarter remained open. This decision will not be made until the June meeting. On the market, Lagarde's statements triggered a slight rise in yields and a weakening of the euro against the dollar.

US Fed: No change of course in sight

As expected, the FOMC decided against changing monetary policy. The key parts of the communiqué also remained unchanged. However, the new forecasts of meeting participants showed an improvement in the outlook, which was probably due to the recently adopted stimulus packages and growing number of vaccinations. In the summer, there could actually be some movement in monetary policy - a reduction in securities purchases from 2022 could then be envisaged.

ECB increases securities purchases

As expected, the ECB Governing Council reacted to the rise in bond market yields. At yesterday's meeting, it was decided to significantly increase purchases under PEPP during the coming quarter. However, as the medium-term stance was confirmed and the duration of the increase is relatively short, the impact on the markets should remain muted.

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RS: NBS holds key rate at 1%

No change policy early in 2021 was largely expected, following strong easing in 2020, and a total of 125bp cuts of the key rate. That said, we do expect them to maintain steady easing course, albeit likely focusing more on the transmission mechanism. As we outlined in our previous reports, further cuts are dependent on the tempo of overall economic recovery alongside inflation developments. Regarding the latter, the NBS sees yearly inflation moving inside the lower part of the targeted band until the end of the forecasted period.

US Fed: No change of course in sight

As expected, the FOMC decided to make no changes to monetary policy at yesterday's meeting. The monetary policy setting body of the US Fed also left the outlook unchanged. Only the assessment of the latest economic data reflected the recent weak data. In addition, Fed Chairman Powell made it clear that the FOMC had no intention of changing anything in the ultra-loose monetary policy by rating the risks of this through his statements as very low.

Lagarde explains monetary policy

As had been widely expected, the Governing Council decided not to change monetary policy. However, it was emphasized that the extent of monthly securities purchases under the PEPP program would vary according to need. The economic situation was assessed slightly better than at the previous meeting. Finally, the ECB president stressed that the exchange rate of the euro would be closely monitored and clarified that all ECB instruments could be adjusted.

US Fed: Asset purchases expected to last until 2022

The US Federal Reserve's monetary policy-making body has decided on a moderate easing of monetary policy. In the future, at least USD 80bn of US government bonds and USD 40bn of mortgage bonds will be purchased every month until substantial progress is made on employment and price stability. We expect securities purchases to begin to decline from mid-2022. Markets had little reaction to the FOMC's decisions and the Fed chairman's statements. The dollar was unable to hold initial gains against the euro.

ECB continues to stock up

As already announced, the ECB decided on a series of further monetary easing measures. Both the volume and duration of the PEPP purchase program were expanded. The period during which the ECB provides liquidity to banks at very favorable conditions was extended, as were the lower requirements for drawing ECB liquidity. The markets had largely expected the measures and therefore hardly reacted.