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Expectations of rate hikes are delayed by eight months

Published on April 7th 2017

The agency has tried to cool the mood of the market twice

The March 9 meeting of the European Central Bank (ECB) was little successful in communicating with the market. At that meeting the entity was not able to convey to investors the idea that really was in the head, as it has been verified during the following month: the regulators have had to give the face several times since then to lower the spirits of the market On a rise in rates; In fact, Reuters published statements by a central bank official late in March that acknowledged that the market had "misinterpreted his words."

Since then, prospects for a rate hike, as a consequence of the return of inflation and more economic growth, have been delayed for eight months from December this year until July 2018. At the March meeting, For the first time Mario Draghi, president of the entity, eliminated several references in his speech on the complicated of the current situation.

Specifically, it removed the paragraph, repeated dozens of times in the last year, which highlighted the regulator's willingness to "use all available instruments" to achieve its mandate: inflation at 2%. In addition to this change in speech, deflation had already been off the board for weeks, according to Draghi himself and the ECB's new macro table confirming it, improving inflation forecasts for 2017 and 2018 - by 2019 Left unchanged, at 1.7% -.

The market was screwed up with its expectations of rate hikes: after this meeting, Bloomberg's chances of seeing an increase in the price of money surpassed 50% by December, something that has now displaced Draghi. The ECB president came out yesterday to try to erase from the map the idea of ​​an exaggerated rise of types soon. He did so in Frankfurt, where he stressed that "a review of our current monetary policy is not necessary at this time."

Fixed income has been one of the assets that has reacted to this bout of the ECB by making clear that the rates will remain low for a considerable time. The 10-year Spanish bond has seen buys over the past few weeks, raising its price by 2.6% in the parquet since the lows of the year, which were played in mid-March.

Although the Italian economist is firm in his conviction that monetary policy still has not to change course, the reality is that not everyone is so clear. Over the last few weeks, voices have emerged that open the door to a rise in the price of money ahead of schedule, and even a small debate began in the Governing Council of the ECB on how to tone down when evaluating Publicly the situation of the eurozone. According to the minutes of the March meeting, "some members felt that the risks can now be out of balance", compared to bearers, as was finally communicated. The reason for not changing the term was "to emphasize that risks and fragility still prevail".

The euro fell ... but it did not last long. The European currency reacted yesterday with rapid falls by the speech of Mario Draghi, arriving to fall more of a 0.3% in the day, to the 1,0629 dollars. However, after this collapse, which occurred in just minutes, the European currency spent an hour in recovering little by little the $ 1,0663 in which started the day. Finally it was practically flat against the dollar, in a day that will not go down in history for the currency, without a clear direction in its ten most quoted crosses.

Source: el economista

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