ECB decisions and EU Leaders Summit

The European Central Bank (ECB) will hold the July meeting on Thursday (July 16th), which is not expected to change interest rates. At its last meeting, the Bank expanded its current Pandemic Emergency Purchase Program (PEPP), which it launched in March, by 600 billion Euros. While the ECB is not expected to change its current policy route at this meeting, it is also wondering whether it will make adjustments in terms of staging interest rates.

In this period when the emergency purchasing program is implemented, a certain amount of recovery is observed in economic activity. We expect the Central Bank, which still buys abundant assets, to continue to follow the recovery process. Therefore, existing assets will not be reinforced under current circumstances, at least at this meeting. However, the ECB and Lagarde will maintain their cautious stance regarding the continuity of the recovery. The decisions to be taken at the following meetings will depend on the ability of the economy to return to its potential speed and inflation expectations, especially in meetings where economic projections will be updated in September and December. As inflation remains at very low levels, asset purchases will continue within the foreseeable period. Core inflation pressures will probably not be achieved through monetary policies, as it seems difficult to create an inflationist pressure caused by a positive output gap (increase in demand).

On Friday, EU leaders will meet to decide on the budget and coronavirus rescue fund. The detail of how much of the 750 billion EUR bailout package, which is considered to help troubled countries, will be granted and how much of this will be given as credits will be important. While the strong Nordic countries oppose the grant mechanism, the problematic countries, which are heavily damaged by the pandemic, especially in Italy, do not want new borrowing and demand a package with a grant. The grant mechanism is considered as a more positive option in terms of not creating new debt problems in the future.

Source: Tera Menkul
Hibya News Agency

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