ECB Monetary Policy Past, Present, Future8b43a9f2-5f22-4723-9ab1... · 2020. 5. 11. · - Purchase of 60 billion EUR/month, 1,140 billion EUR in total - Covered bonds, asset backed

ECB Monetary Policy – Past, Present, Future

Univ. Prof. Ewald Nowotny

Governor

Oesterreichische Nationalbank

Zürich, 27 October 2015

www.oenb.at

www.oenb.at [email protected] - 2 -

The pre-crisis consensus:

Focus on price stability and use of short-term interest rate

-1

0

1

2

3

4

5

6

1999

2000

2001

2002

2003

2004

2005

2006

2007

EA CH US

Inflation: Euro area, USA and Switzerland

in %

Source: Eurostat, BIS, Thomson Reuters.

0

1

2

3

4

5

6

7

1999

2000

2001

2002

2003

2004

2005

2006

2007

EA CH 1) US

Policy rates: Euro area, USA and Switzerland

in %

1) Swiss target 3m Libor average - middle rate. Up until Dec. 1999: Swiss 3 month Libor SNB - middle rate .


But different approaches to influencing short-term rates

Implementation differs

- Outright purchases vs. repos

- Number of counterparties

- Breadth of collateral pool

- Domestic vs. foreign assets

- …

because of historical traditions and

different structure of financial

systems.

Differences do not matter as long as

financial markets works smoothly.

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Eurosystem Federal Reserve SNB

Gold and forex Securities heldRepos Other assets

Composition of CB assets (Dec. 2006)

Source: Thomson Reuters.


In 2008 Fed becomes more like ECB, then QE

- Problems in interbank markets

new lending programs for

banks very much alike existing

Eurosystem facilties

- High risk premia for mortgages

purchases of mortgage

backed securities and agency

debt

- Short-term interest rates reach

lower bound QE, purchase

of treasuries and further MBS

to push down long-term interest

rates

0

500

1000

1500

2000

2500

3000

3500

4000

4500

5000

2007 2008 2009 2010 2011 2012 2013 2014 2015

Gold and forex TreasuriesMBS, agency debt ReposOther assets

Fed assetsin billion USD



Initially Eurosystem was able to accommodate pressure

within existing framework

Eurosystem operations crisis-resilient per construction:

- (practically) all banks in the EA have access to refinancing

- broadly defined collateral set

Eurosystem provides additional support

- most important: fixed rate full allotment

- enlarging collateral pool

- longer maturities (1, then 3 and 4 years)

- provision of USD and CHF liquidity

- purchase of covered bonds

0

500

1000

1500

2000

2500

3000

3500

2007 2008 2009 2010 2011 2012 2013 2014 2015

Gold and forex Long-term refinancingShort-term refinancing Claims on EA in forexSecurities for monpol Other

Eurosystem assetsConsolidated balance sheet, in billion EUR



But crisis in the euro area has an additional twist

0

2

4

6

8

10

12

14

16

18

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

IE AT FR DE ES IT PT

10-year Government Bonds of Selected Countries

Yield in %

Source: Thomson Reuters, ECB.

90

110

130

150

170

190

210

230

250

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

IE AT FR DE ES IT PT

Lending to Non Financial Corporations of Selected Countries

Volumes, January 2005=100


Eurosystem ensures cohesion of euro area

Fixed rate full allotment serves as

back-stop for national banking

systems

Targeted LTROs supports lending to

real economy

SMP prevented contagion

Not visible in the graph because no

purchases undertaken, but highly

effective:

Announcement of OMT

0

500

1000

1500

2000

2500

3000

3500

2007 2008 2009 2010 2011 2012 2013 2014 2015

Gold and forex Long-term refinancingShort-term refinancing Claims on EA in forexSecurities for monpol Other

Eurosystem assetsConsolidated balance sheet, in billion EUR



Why was the Eurosystem so late with QE?

-200

0

200

400

600

800

1000

-1

0

1

2

3

4

5

2007 2008 2009 2010 2011 2012 2013 2014 2015

Excess liquidity MRO rate

Deposit facility rate EONIA

Excess liquidity and market interest rates

in % (lhs), in billion EUR (rhs)

Source: ECB, Thomson Reuters.


Asset purchase programme APP –

Covered bonds, ABS and (mainly) public sector securities

Decided in January 2015

- Purchase of 60 billion EUR/month,

1,140 billion EUR in total

- Covered bonds, asset backed

securities, public sector securities

Objectives:

- prevent decrease in inflation rate

- anchor inflation expectations

Continue purchases until September

2016 and at least until inflation

close to target

0

50

100

150

200

250

300

350

400

450

10/14 11/14 12/14 01/15 02/15 03/15 04/15 05/15 06/15 07/15 08/15

CBPP 3 ABSPP PSPP

The New Purchase Programmes (CBPP3, ABSPP, PSPP)

EUR billions

Source: ECB.


APP halts decline in inflation expectations, but inflation

expecations remain low

0,0

0,5

1,0

1,5

2,0

2,5

3,0

01.01.2012 01.01.2013 01.01.2014 01.01.2015

Implicit index-linked swap five-year forward rate (5y5y, 5-days ma)

5-year (5-days moving average)

10-year (5-days moving average)

Inflation linked swaps - euro area% (daily data, five-days moving average)

Source: Thompson Reuters.

-16

-8

0

8

16

24

32

1,2

1,4

1,6

1,8

2,0

2,2

2,4

Jän.06 Jän.07 Jän.08 Jän.09 Jän.10 Jän.11 Jän.12 Jän.13 Jän.14 Jän.15Long-term inflation expectations (five years ahead; ConsensusEconomics)Inflation expectations five years ahead (ECB - SPF)

Consumer survey (prices 12 months ahead, right-hand scale)

Survey-based inflation expectations

Source: ECB, European Commission, Consensus Economics Inc.

in %


Euro area (slowly) returns to growth

but inflation remains weak

ECB projections

September 2015

Changes from June

2015 2016 2017 2015 2016 2017

Real

GDP

+1.4% +1.7% +1.8% -0.1pp -0.2pp -0.1pp

HICP-

Inflation

+0.1% +1.1% +1.7% -0.2pp -0.3pp -0.1pp


The challenges for monetary policy in the euro area

Monetary policy will remain “unconventional” for some time to come:

- Policy at the zero lower bound

- Normalization will be challenging

However, reforms undertaken during the last years should reduce the probability that the Eurosystem would have to intervene as it as during the recent years:

- Banking union weakens link between banks and fiscal position of member states

- Improvement in economic governance should prevent recurrence of fiscal and macroeconomic imbalances

- Capital market union should reduce dependency of households and firms on their national banking system

As a result, in the mid-term monetary policy should become more standard again.


The European Banking Union

Single Supervisory Mechanism (SSM):

- ECB supervises about 120 large banks directly

(more than 80% of banking sector‘s balance sheet)

- Makes the ECB one of the world’s largest

supervisors

- Objective: ensuring the safety and stability

of the banking system as a whole

Single Resolution Mechanism (SRM):

- Providing a framework for the recovery

and resolution of credit institutions and

investment firms.

- Has a resolution fund at its disposal.

- A big step towards solving the

too-big-to-fail problem.


Three tasks under one roof

Monetary Policy

Macro-Prudential

Policy

Single Supervisory Mechanism

(SSM)


Action plan for Capital Market Union

Objectives

- Support investment

- Open alternatives to bank loans such as capital markets, venture capital, crowdfunding

- Deepen integration and increase competition, encourage cross-border risk sharing

- Mid- to long-term project, but includes some initiatives that can be realized quickly

List of actions

- Financing for innovation, start-ups and non-listed companies

- Ease access for companies to enter and raise capital on public markets

- Long-term infrastructure investment

- Fostering retail and institutional investment

- Help banks to finance wider economy

- Facilitating cross-border investing


Thank you for your attention.

ECB Monetary Policy Past, Present, Future8b43a9f2-5f22-4723-9ab1... · 2020. 5. 11. · - Purchase of 60 billion EUR/month, 1,140 billion EUR in total - Covered bonds, asset backed

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