BNY’s Newton IM: Commentary on the ECB meeting on September 12th
BNY’s Newton IM: Commentary on the ECB meeting on September 12th
Paul Brain, Head of Fixed Income at Newton Investment Management comments ahead of the ECB meeting on 12th September: Markets expect to see fiscal policy on the table at the next European Central Bank meeting
“Slowdown in global trade since the middle of last year is testing monetary policy, currently the only tool available, and causing speculation that fiscal policy will be next to intervene in the European market. Following discussions at the last European Central Bank meeting, the market has already begun pricing in expectations for a modest cut in cash rates and also the resumption of purchases.
The Japanification of Europe also looks set to continue, with the growing possibility that the ECB will set even lower interest rates. Continued negative interest rates are creating questions around economic stability and the current slowdown has the ECB exploring the extent of monetary policy whilst also suggesting more needs to be done.
A modest cut in cash rates (perhaps -10bp) is unlikely to turn the European economy around and, unfortunately, maintains the negative interest rate structure which is so damaging to the banking sector and savers. Other stimulus through asset purchases and providing liquidity to the banking sector may help but there are growing calls for governments to step in and boost fiscal spending. Going forward the markets obsession with central bank meetings may be misled and we will all need to focus more on the political process.”