ECB Shadow Council Minutes Members see enough leeway to cope with rise in yields
The members of Handelsblatt’s Shadow ECB Council see no need to adjust the monetary policy parameters.
Frankfurt From the members point of view, however, the ECB should clearly communicate that it will continue to guarantee favorable financing conditions and use the leeway within the PEPP bond program to support this message. The majority of the members of the Shadow Council consider the recent rise in inflation and further increases in the euro area this year to be a temporary phenomenon caused mainly by one-off effects.
Growth and Inflation forecasts
Members of the ECB Shadow Council revised their inflation forecast for 2021 upward from 0.9 percent to 1.4 percent. They reduced their forecasts for 2022 from 1.3 to 1.2 percent and for 2023 from 1.4 to 1.3 percent.
The members reduced their GDP forecast for this year from 4.4 percent to 4.3 percent. They revised their forecasts upward for 2022 from 3.2 to 3.9 percent and for 2023 from 1.8 to 1.9 percent.
| Shadow Council macroeconomic forecasts (December forecasts in brackets) | ||
| HICP-Inflation* | GDP-Growth | |
| 2021 | 1.4 (0.9) | 4.3 (4.4) |
| 2022 | 1.2 (1.3) | 3.9 (3.2) |
| 2023 | 1.3 (1.4) | 1.9 (1.8) |
Contributors: D. Antonucci, M. Annunziata; A. Bosomworth, S. Broyer; F. Ducrozet, J. Henry, J. Krämer, D. Schumacher, K. Utermöhl. *Harmonized Index of Consumer Prices, a weighted average of price indices of eurozone countries. | ||
No change in Monetary Stance
The rise in yields on the bond market is currently causing discussions. Long-term yields there have risen significantly recently, especially in the USA, but to a lesser extent also in the euro area. The members of the Shadow Council are calm about this development. It was pointed out that financing conditions in the euro area are still very favorable and do not only depend on bond yields. In addition, there are no signs of greater fragmentation in the bond market in the euro area. From the members' point of view, it is therefore currently not necessary to adjust the monetary policy parameters. The PEPP program offers enough flexibility to react.
Walking the talk
From the point of view of most members, however, it is important that the ECB emphasizes in its communication that it will continue to guarantee favorable financing conditions. In this context, several members described it as unfortunate that the pace of buying bonds has been slow recently, although ECB officials have signaled their unease with rising bond yields. Several members argued that the ECB should frontload bond purchases to keep yields low at a time when the economic outlook remains fragile. One member stressed that this could lead to lower required purchases by boosting the ECB’s credibility.
No long-term upward trend in inflation
The majority of the members of the Shadow Council consider the recent rise in inflation and its further increases in the euro area this year to be a temporary phenomenon caused mainly by one-off effects. In their opinion, the ECB should look through this development in monetary policy terms and communicate this clearly. One member expects that the recent sharp increase in the money supply will lead to an inflation problem, but he expects that this will only materialize in five to ten years.
| Member | Affiliation | Deposit rate | Asset Purchases |
| José Alzola | The Observatory Group | Unchanged | Unchanged |
| Marco Annunziata | Annunziata Advisors | Unchanged | Unchanged |
| Daniele Antonucci | Quintet Private Bank | Unchanged | Unchanged |
| Elga Bartsch | Blackrock | Unchanged | Unchanged |
| Andrew Bosomworth | Pimco | Unchanged | Unchanged |
| Sylvain Broyer | S&P Global Ratings | Unchanged | Unchanged |
| Jacques Cailloux | Rokos Capital | Unchanged | Unchanged |
| Frederik Ducrozet | Pictet | Unchanged | Unchanged |
| Janet Henry | HSBC | Unchanged | Unchanged |
| Jörg Krämer | Commerzbank | Unchanged | Unchanged |
| Thomas Mayer | Flossbach von Storch | Unchanged | Unchanged |
| Dirk Schumacher | Natixis | Unchanged | Unchanged |
| Katharina Utermöhl | Allianz | Unchanged | Unchanged |
Frankfurt, Germany
March 8th, 2021
Written by Jan Mallien
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