In line with the our and market expectations, the European Central Bank (ECB) left the policy rate unchanged. With the ongoing global issues and looking at a slower growth, as expected the ECB, which had previously said that rates would remain at these levels through to the end of the summer, has indicated that it now expects its key interest rates “to remain at their present levels at least through the end of 2019”.

Besides, we felt it is timely for the ECB, which ended its massive bond-buying programme back in December, to unveil yet more stimulus measures. We welcome the decision by the ECB to launch a new series of quarterly targeted longer-term refinancing operations (TLTRO-III) which will begin September 2019 and end in March 2021, each with a maturity of two years. More so with a sharp downgrade on its 2019 GDP growth to 1.1% from 1.6% previously.

The ECB’s recent decision could mean that the US Fed is more likely to turn less aggressive on its rate hike cycle in 2019. Possibilities for the Fed to hold rates throughout 2019 remain high, with a low chance of a one rate hike. Given a less aggressive tightening monetary outlook expected from the major central banks in 2019, it provides more room for Emerging Markets’ central banks to either hold rates or reduce in a move to support their respective economic growth while ensuring inflation remains within their trajectory.

• In line with the our and market expectations, the European Central Bank (ECB) left the policy rate unchanged. Interest rates on its marginal lending facility and deposit facility will remain unchanged at 0%, 0.25% and -0.40% respectively. These rates have been at record lows for years following the euro sovereign debt crisis of 2011 in an effort to boost inflation and stimulate growth.

• With the ongoing global issues and looking at a slower growth, the ECB, which had previously said that rates would remain at these levels through to the end of the summer, has indicated that it now expects its key interest rates “to remain at their present levels at least through the end of 2019”, a move to support growth and inflation.

• Besides, we were hoping the ECB would provide guidance on whether it would embark on more stimulus measures as we feel the euro risks falling into “nominal recession”. Our initial 2019 GDP projection was 1.6% while the ECB back in December looked at 1.7% but has now revised downwards sharply to 1.1% which is in line with our “worst case scenario”.

• With a lower economic outlook and rising external risks, we feel it is timely for the ECB, which ended its massive bondbuying programme back in December, to unveil yet more stimulus measures. We welcome the decision by the ECB to launch a new series of quarterly targeted longer-term refinancing operations (TLTRO-III) which will begin September 2019 and end in March 2021, each with a maturity of two years.

• The ECB’s recent decision could mean that the US Fed is more likely to turn less aggressive on its rate hike cycle in 2019. Possibilities for the Fed to hold rates throughout 2019 remain high, with a low chance of one rate hike. Given a less aggressive tightening monetary outlook expected from the major central banks in 2019, it provides more room for Emerging Markets’ central banks to either hold rates or reduce in a move to support their respective economic growth while ensuring inflation remains within their trajectory.

Source: AmInvest Research - 8 Mar 2019