At the same time, the case was made for keeping a “free hand” in view of the elevated uncertainty, underpinning the need to carefully assess all incoming information, including the euro exchange rate, and to maintain flexibility in taking appropriate policy action if and when needed. "ECB sees 2020 GDP growth at -7.3% vs -8% seen in September." stress that the incoming information continued to signal a strong resumption of euro area economic activity, broadly in line with previous expectations, although the recovery remained incomplete, uneven and subject to considerable uncertainty; emphasise that inflation pressures were expected to remain subdued on account of weak demand, lower wage pressures and the appreciation of the euro exchange rate; note that the unchanged projection for headline inflation in 2022 masked an upward revision to core inflation (reflecting the positive impact of monetary and fiscal policies, albeit muted by the appreciation of the euro) that was offset by the revised path of energy price inflation; reiterate that ample monetary policy stimulus would remain necessary to support the economic recovery and to offset the negative impact of the pandemic shock on the projected path of inflation; highlight that, in the current environment of elevated uncertainty, significant economic slack and increased exchange rate volatility, the Governing Council would monitor incoming information very carefully and continue to stand ready to adjust all of its instruments, as appropriate, to ensure that inflation moved towards its aim in a sustained manner. the reversal of previous safe-haven flows into the United States. Ms Schnabel reviewed the financial market developments since the Governing Council’s previous monetary policy meeting on 15-16 July 2020. Is Inflation Targeting the Best We Can Do? However, it was notable that services inflation – which was much more closely linked to domestic developments and had a high wage content – had also declined further, falling from 1.2% in June to 0.9% in July and 0.7% in August. In this context, NGEU funds were seen as important in helping to create a more level playing field, as the scope for national fiscal measures differed across countries. There were key downside risks to the medium-term outlook for price stability, mainly related to the as yet uncertain economic and financial implications of the pandemic. SUMMARY. Finally, it needed to be highlighted that fiscal policy continued to be critical to support the recovery of the euro area economy and to provide important funding support to those hardest hit by the pandemic. With regard to financial conditions and the monetary policy stance, members broadly shared the assessments provided by Ms Schnabel and Mr Lane in their introductions. Over the medium term a recovery in demand, supported by accommodative monetary and fiscal policies, would put upward pressure on inflation. The euro had continued to appreciate against the US dollar (+3.8%) and in nominal effective terms (+1.7%) against a trade-weighted basket of 42 currencies. Faster Wage Growth for the Lowest-Paid Workers, Private and Central Bank Digital Currencies, Changes in the Balance of Payments Statistics. Recovery from an uneven recession, Capital flows, exchange rates and policy frameworks in emerging Asia, What share for gold? The appreciation of the euro resulted, in part, from the broad weakness of the US dollar. Members widely agreed that the ECB’s monetary policy measures were providing crucial support for the recovery of the euro area economy and underlying inflation pressures. It was urged that fiscal support should not be withdrawn prematurely, but should be channelled towards enhancing productivity growth, fostering sustainable economic growth, bolstering innovation and strengthening the long-term growth potential of the euro area economy. It was argued that the severe scenario could not be entirely ruled out as there had been a new wave of infections, even if it had not so far been as lethal as the first wave. Growth was foreseen to average −8.0%, 5.0% and 3.2% in 2020, 2021 and 2022 respectively. Idiosyncratic factors could partially explain these divergences. However, it was notable that services inflation – which was much more closely linked to domestic developments and had a high wage content – had also declined further, falling from 1.2% in June to 0.9% in July and 0.7% in August. The first and most important one was the substantial improvement in global risk sentiment, i.e. In particular, investors and forecasters had become more optimistic about the prospects for the early availability of a vaccine. The purchases would continue to be conducted in a flexible manner over time, across asset classes and among jurisdictions. Over the summer real interest rates had declined notably faster in the United States than in the euro area. A more positive assessment regarding the future pattern of private consumption was based on the view that people would learn to live with the virus. Chinese stocks were also trading well above pre-pandemic levels. In case you are not in the know, this article has got you covered. In discussing recent developments in inflation expectations, members noted that longer-term inflation expectations, as reported in the ECB’s Survey of Professional Forecasters, had fallen to 1.6%, the lowest level since the start of Economic and Monetary Union. Weaker demand for services was also seen in lower services inflation. Euro area HICP inflation had fallen to −0.2% in August, from 0.4% in July, according to Eurostat’s flash estimate. Do Higher Wages Mean Higher Standards of Living? In the euro area, the reversal in risk premia had been slower. Overall, the latest readings of measures of underlying inflation pointed to a moderate weakening. This included tracking the underlying dynamics of the pandemic, developments in negotiations on the post-transition Brexit arrangements and decisions on fiscal plans. Turning to fiscal policies, the euro area fiscal stance was expected to be strongly expansionary in 2020, with most of the additional spending comprising transfers to firms and households. While the rebound in economic activity had resulted in some recovery in firms’ revenues and a shift in loan demand towards longer-term loans, the uncertainty over the economic outlook was likely to cast a shadow over future loan demand. The Governing Council would continue its purchases under the pandemic emergency purchase programme (PEPP) with a total envelope of €1,350 billion. Thursday’s ECB policy meeting and press conference will likely play an important role in the future direction of the single currency although it may be talk rather than action that sets the tone. This allowed the Governing Council to effectively stave off risks to the smooth transmission of monetary policy. The meeting dates for 2020 are as follows. Over the coming weeks more data would become available, which would provide improved visibility about how the various forces at play would influence the medium-term inflation outlook. Turning to euro area price developments, euro area annual HICP inflation had decreased from 0.4% in July to −0.2% in August (according to Eurostat’s flash estimate). Release of the next monetary policy account foreseen on Thursday, 26 November 2020. Survey data indicated that the perceived lack of demand was increasingly becoming a drag on investment – in particular business investment – in the second and third quarters of 2020. Whileexpectationsfor growth in 2020 Find out how the ECB promotes safe and efficient payment and settlement systems, and helps to integrate the infrastructure for European markets. TEXT-ECB statement after policy meeting. At the same time, the point was made that the pace of monthly purchases could be reduced as tensions in financial markets subsided. It was seen as important to remain firm on previous announcements regarding the overall PEPP envelope, which underpinned the Governing Council’s commitment to bring inflation back to levels in line with its aim. While the NGEU recovery plan was a positive development, uncertainty about the evolution of the ongoing COVID-19 pandemic and the potential materialisation of adverse real-financial feedback loops called for vigilance. In this context, it was also emphasised that the ECB’s inflation aim was symmetrical and that the Governing Council would respond with the same determination to sustained downside deviations as to sustained upside deviations from the inflation aim. The ECB has already signaled that they are willing to extend the Pandemic Emergency Purchase Program (PEPP) until as late as mid-2022 and increase bond buy by a possible 500 million Euros. Loan Disbursement under the Fund-Provisioning Measure to Stimulate Bank Lending (December 2020), Semiannual Report on Currency and Monetary Control (Summary), (Research Paper) Prospects of Private Equity Funds in Japan — Expectations toward Finance with Ideas and Commitment —, Review of the Benchmark Ratio Used to Calculate the Macro Add-on Balance in Current Account Balances at the Bank of Japan, Average Interest Rates by Type of Deposit, Decisions taken by the Governing Council of the ECB (in addition to decisions setting interest rates), Christine Lagarde, Luis de Guindos: Introductory statement to the press conference (with Q&A), ECB extends pandemic emergency longer-term refinancing operations, ECB prolongs support via targeted lending operations for banks that lend to the real economy, Denmark to join Eurosystem’s TARGET services, Philip R. Lane: Transcript of the fireside chat at Reuters Global Outlook Investment Summit, FINMA-Aufsichtsmitteilung 08/2020: LIBOR-Ablösung im Derivatebereich, FINMA rügt Bank SYZ wegen Verstössen in der Geldwäschereibekämpfung, Versicherungsmarkt Schweiz: deutlich höhere Ergebnisse, Credit Suisse “Beschattungsaffäre”: FINMA eröffnet Enforcementverfahren, How staying at home in 2020 affected the transportation industry: Part 1 : Profit losses, A history of European exchange rates : Data during and after the Bretton Woods system, Where retail sales have been booming : Sporting goods, home project supplies, and groceries are way up, Let’s talk turkey prices : …as well as prices in Turkey, The state of decline in retail sales : Using new Census data to compare U.S. states, SNB Profit in Q1 to Q3 2020: CHF 15.1 billion Despite Covid19, Swiss balance of payments and international investment position: Q2 2020, Fed and ECB Money Printing Helps SNB Back into Positive Territory, Swiss Balance of Payments and International Investment Position: Q1 2020, SNB Interim Results: -38 Billion, An Analysis, Swiss Balance of Payments and International Investment Position: Q4 2019 and review of the year 2019, Swiss Balance of Payments and International Investment Position: Q3 2019, Chart of the WeekWhen Inequality is High, Pandemics Can Fuel Social Unrest, Navigating Capital Flows—An Integrated Approach, A Greener Future Begins with a Shift to Coal Alternatives, Cyber Risk is the New Threat to Financial Stability, How Governments Can Create a Green, Job-rich Global Recovery, COVID-19 Hits the Poor Harder, but Scaled-Up Testing Can Help, How Artificial Intelligence Could Widen the Gap Between Rich and Poor Nations, What comes next? The Governing Council assembles twice a month in Frankfurt, Germany. The relationship between slack and inflation was being heavily distorted by the lockdowns and specific factors that were at play during the pandemic, including uncertainty about the pandemic’s impact on the supply side and on potential growth. However, it was also noted that the emerging risk of insolvencies could be addressed by governments, with shortfalls in liquidity and capital being dealt with through existing government programmes. However, base effects in the energy component and, to a lesser extent, the reversal of the VAT rate cut in Germany, would generate a mechanical rebound in 2021. The pick-up in inflation to 1.3% in 2022 could also be considered optimistic against the background of the sharp decline in activity and high uncertainty. The September ECB staff projections foresaw an increase in headline inflation from 0.3% in 2020 to 1.0% in 2021 and 1.3% in 2022. The situation in the labour market could be expected to lead to weaker wage pressures over time. At the same time, it was highlighted that inflation expectations were still too low and that even though the risk of deflation was decreasing, it remained non-negligible. Following strong increases during the early months of the pandemic, the annual growth rate of loans to non-financial corporations had remained broadly stable in July, standing at 7.0%. Fiscal measures taken in response to the pandemic emergency should as much as possible be targeted and temporary in nature. The Composite Indicator of Systemic Stress (CISS) remained only marginally higher than before the coronavirus (COVID-19) period, with the difference primarily being driven by still elevated volatility, particularly in stock markets. The unchanged projection for inflation in 2022 masked an upward revision to core inflation (reflecting the positive impact of monetary and fiscal policy measures). While temporary factors had distorted the August figure, underlying price pressures had likely weakened owing to subdued demand and significant labour market slack. Reproduction is permitted provided that the source is acknowledged. In line with global activity, trade had also been recovering recently. Account of the monetary policy meeting of the Governing Council of the European Central Bank held in Frankfurt am Main on Wednesday and Thursday, 9-10 September 2020. ** In accordance with Article 284 of the Treaty on the Functioning of the European Union. Net purchases under the asset purchase programme (APP) would continue at a monthly pace of €20 billion, together with the purchases under the additional €120 billion temporary envelope until the end of the year. However, the scale of the upward revision to core inflation was muted by the appreciation of the euro. Recently, momentum had slowed in the services sector compared with the manufacturing sector, which was also visible in survey results for August. It was suggested that the relative impact of negative shocks to demand and supply could be investigated in more depth by analysing sectoral developments. Incoming data and survey results indicated a continued recovery of the euro area economy and pointed to a strong rebound in GDP growth in the third quarter. Members widely agreed with the assessment presented by Mr Lane that ample stimulus remained necessary to support the economic recovery and to safeguard medium-term price stability. The response was so strong that the GeForce RTX 3080 was immediately sold out following its launch in September.Nvidia shares have already risen by a staggering 120% so far in 2020… While there was an upward revision to inflation excluding energy and food in the latest staff projections, headline inflation was projected to be 1.3% in the final year of the projection horizon, thereby remaining below the projected pre-crisis path and some distance from levels in line with the Governing Council’s inflation aim. While activity in sectors such as hospitality and tourism was not likely to recover soon, in other sectors, such as IT or online commerce, there had even been a positive demand shock. An upside risk to growth and to the labour market was seen as emanating from fiscal policy, as several governments had decided on, or were currently discussing, additional measures that were not incorporated in the current projections. The argument was made that the inflation outlook in the September staff projections appeared too optimistic. Mr Dombrovskis, Commission Executive Vice-President**, Ms Senkovic, Secretary, Director General Secretariat, Mr Smets, Secretary for monetary policy, Director General Economics, Mr Winkler, Deputy Secretary for monetary policy, Senior Adviser, DG Economics, Ms Rahmouni-Rousseau, Director General Market Operations, Mr Rostagno, Director General Monetary Policy, Mr Bracke, Deputy Director General Communications, Mr Sousa, Deputy Director General Economics. Differences in portfolio rebalancing might have contributed to the divergence in risk premia. The speed of the rebound was broadly in line with the expected pace set out in the June 2020 projections. There were key downside risks to the medium-term outlook for price stability, mainly related to the as yet uncertain economic and financial implications of the pandemic. In any case, the future roll-off of the PEPP portfolio would be managed to avoid interference with the appropriate monetary policy stance. While the rebound in economic activity had resulted in some recovery in firms’ revenues and a shift in loan demand towards longer-term loans, the uncertainty over the economic outlook was likely to cast a shadow over future loan demand. Many market participants believed that this divergence – if it were to persist – would lower the risk of widespread lockdowns, resulting in less of a downside risk to economic activity. Be ready to act on ECB opportunities. While the pandemic was a common shock across euro area countries, references were made to the heterogeneity of developments in activity across countries, which could be attributed to differences in the evolution of the virus, to the containment measures and fiscal policy responses implemented in each country, and to the structure of each economy. While the pandemic was a common shock across euro area countries, references were made to the heterogeneity of developments in activity across countries, which could be attributed to differences in the evolution of the virus, to the containment measures and fiscal policy responses implemented in each country, and to the structure of each economy. Longer-term risk-free rates remained at low levels amid a further decline in real rates. The euro nominal effective exchange rate had been on an upward trend since the crisis had struck, driven to a large extent by the euro’s appreciation against the US dollar. In this regard, the underlying dynamics of the pandemic, developments in negotiations on the post-transition Brexit arrangement, the outcome of the US presidential election and decisions on fiscal plans at the individual country level as well as at the euro area level had to be closely monitored. Consumer spending had increased, but accumulated savings remained high and households were likely to remain cautious, especially in the context of the expected deterioration in labour market conditions. While adverse financial amplification effects had to some extent been included in the September staff projections with regard to bank lending rates, the swift rebound in business investment foreseen in the baseline might appear optimistic, in part in view of the strong preference of firms for liquidity. Members noted that although the inflation outlook was largely unchanged relative to the baseline in the June projections, this was in large part due to the policy measures taken, which were responsible for an upward revision to underlying inflation, and the outlook would have been weaker in the absence of these measures. As regards the external environment, members broadly shared the assessment provided by Mr Lane in his introduction. This would allow buffers to be built up in case market turbulence and fragmentation were to re-emerge. While banks had increased their provisions in view of higher expected losses, the point was made that low bank valuations could reflect a weak profitability outlook as well as doubts among investors about the quality of bank balance sheets and the adequacy of the level of provisions given expected increases in firm defaults and bankruptcies. A more positive assessment regarding the future pattern of private consumption was based on the view that people would learn to live with the virus. ... ECB meeting overshadowed by concerns over strong euro, deflation. Large parts of the curve were again in negative territory and very close to the lowest level ever recorded. Net purchases under the asset purchase programme (APP) would continue at a monthly pace of €20 billion, together with the purchases under the additional €120 billion temporary envelope until the end of the year. ** In accordance with Article 284 of the Treaty on the Functioning of the European Union. Market-based indicators of longer-term inflation expectations had returned to their pre-pandemic levels, but the increase had been much smaller than in the United States and they still remained at very subdued levels. While banks had increased their provisions in view of higher expected losses, the point was made that low bank valuations could reflect a weak profitability outlook as well as doubts among investors about the quality of bank balance sheets and the adequacy of the level of provisions given expected increases in firm defaults and bankruptcies. At the same time, since the July Governing Council meeting the euro exchange rate had appreciated significantly against almost all advanced and emerging market currencies, reflecting in part positive risk sentiment towards the euro area, which was also supported by the agreement on the NGEU plan as well as relative monetary policy configurations in major jurisdictions. According to Eurostat’s flash estimate, euro area annual HICP inflation had decreased to −0.2% in August 2020, after 0.4% in July, reflecting lower contributions from the food, non-energy industrial goods and services components. Survey-based measures remained well above market-based measures, but were still at historical lows. 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