Given economic uncertainty, ECB may stay accommodative

by Franck Dixmier | 04/03/2019
Given economic uncertainty, ECB may stay accommodative


Changes in the euro zone’s economy have raised expectations that the central bank will be more precise at its next meeting about what’s causing the slowdown. We think the ECB will continue delaying rate hikes while also announcing a new liquidity program for banks.

Key takeaways

  • Amid deteriorating economic conditions and falling inflation expectations in the euro zone, the ECB’s 7 March meeting is highly anticipated by the markets
  • Investors will be awaiting news on three elements: updated prospects for euro-zone growth, an analysis of the downturn’s causes and duration, and possible news of another TLTRO-style liquidity facility
  • Fixed-income spreads in peripheral countries (especially Italy and Spain) stand to benefit from news of another liquidity program, and from renewed expectations of a first rate hike being delayed until 2020

Against the backdrop of the euro zone’s deteriorating economic outlook and falling inflation expectations, the markets are highly focused on the 7 March meeting of the European Central Bank. We expect the ECB to update its growth and inflation forecasts, given that at its January meeting, ECB members noted the slowdown while questioning its duration and medium-term impacts. Moreover, the minutes of this meeting showed that the ECB found it difficult to arrive at even this uncertain conclusion.

This time, we expect the central bank will provide a more precise analysis of the slowdown’s impact on the euro zone’s medium-term outlook and the likelihood of a rebound in the second half of the year. It will also be interesting to observe the ECB’s analysis of the causes of the slowdown: are they specific to certain European sectors or countries, or are they more generally linked to global uncertainty?

The other main topic of the 7 March meeting will likely be the idea of a new liquidity program. Approximately EUR 380 billion in targeted long-term refinancing operations (TLTROs) – cheap loans that the ECB provided to banks – are set to mature in June 2020.

The ECB did not seem to be in a hurry to discuss a possible new liquidity plan back in January, but recent statements by Benoit Coeuré and Peter Praet – both members of the ECB’s Executive Board – are a good sign that further developments are likely. Without a new liquidity program in place, the TLTRO repayments in 2020 would have a negative impact on the ECB’s balance sheet and lead to a significant tightening of monetary conditions. This would not be appropriate in the current context of an economic slowdown. We therefore think that on 7 March, the ECB will announce the launch of a new program, while waiting until a future meeting to spell out the technical details.

Investors should have increased confidence that a first rate hike will occur in 2020, given the recent downward revisions to the euro-zone’s growth outlook. The markets are counting on this timing, and the minutes of the January meeting show that the ECB seems quite comfortable with these expectations. The communication of a new liquidity facility should also have a positive impact on fixed-income spreads in peripheral countries, notably Italy and Spain.


About the author/s

Franck Dixmier

Franck Dixmier

Global Head of Fixed Income

Franck Dixmier is Global Head of Fixed Income and a member of the Investment Executive Committee at Allianz Global Investors.

Inflation expectations support holding rates steady – for now

by Franck Dixmier | 18/03/2019
Franck Dixmier


With the Fed having largely achieved its objectives of full employment and price stability, we expect short-term rates to stay unchanged at the FOMC’s next meeting. This should be good for investors, but don’t rule out a rate hike by the end of the year if inflation surges, or if tariff- or Brexit-related risks recede.

Key takeaways

  • Expect the FOMC to confirm its prudent approach at its March 20 meeting: it has achieved full employment and price stability, and inflation expectations remain moderate
  • We believe the Fed’s interest-rate policy is appropriate and rates should remain unchanged for now; in our view, this provides a strong anchor for the US yield curve
  • Still, a rate hike at the end of the year cannot be ruled out, given the US economy’s resilient growth and the potential for higher inflation
  • Investing involves risk. The value of an investment and the income from it will fluctuate and investors may not get back the principal invested. Past performance is not indicative of future performance. This is a marketing communication. It is for informational purposes only. This document does not constitute investment advice or a recommendation to buy, sell or hold any security and shall not be deemed an offer to sell or a solicitation of an offer to buy any security.

    The views and opinions expressed herein, which are subject to change without notice, are those of the issuer or its affiliated companies at the time of publication. Certain data used are derived from various sources believed to be reliable, but the accuracy or completeness of the data is not guaranteed and no liability is assumed for any direct or consequential losses arising from their use. The duplication, publication, extraction or transmission of the contents, irrespective of the form, is not permitted.

    This material has not been reviewed by any regulatory authorities. In mainland China, it is used only as supporting material to the offshore investment products offered by commercial banks under the Qualified Domestic Institutional Investors scheme pursuant to applicable rules and regulations. This communication's sole purpose is to inform and does not under any circumstance constitute promotion or publicity of Allianz Global Investors products and/or services in Colombia or to Colombian residents pursuant to part 4 of Decree 2555 of 2010. This communication does not in any way aim to directly or indirectly initiate the purchase of a product or the provision of a service offered by Allianz Global Investors. Via reception of his document, each resident in Colombia acknowledges and accepts to have contacted Allianz Global Investors via their own initiative and that the communication under no circumstances does not arise from any promotional or marketing activities carried out by Allianz Global Investors. Colombian residents accept that accessing any type of social network page of Allianz Global Investors is done under their own responsibility and initiative and are aware that they may access specific information on the products and services of Allianz Global Investors. This communication is strictly private and confidential and may not be reproduced. This communication does not constitute a public offer of securities in Colombia pursuant to the public offer regulation set forth in Decree 2555 of 2010. This communication and the information provided herein should not be considered a solicitation or an offer by Allianz Global Investors or its affiliates to provide any financial products in Brazil, Panama, Peru and Uruguay. In Australia, this material is presented by Allianz Global Investors Asia Pacific Limited (“AllianzGI AP”) and is intended for the use of investment consultants and other institutional/professional investors only, and is not directed to the public or individual retail investors. AllianzGI AP is not licensed to provide financial services to retail clients in Australia. AllianzGI AP (Australian Registered Body Number 160 464 200) is exempt from the requirement to hold an Australian Foreign Financial Service License under the Corporations Act 2001 (Cth) pursuant to ASIC Class Order (CO 03/1103) with respect to the provision of financial services to wholesale clients only. AllianzGI AP is licensed and regulated by Hong Kong Securities and Futures Commission under Hong Kong laws, which differ from Australian laws.

    This document is being distributed by the following Allianz Global Investors companies: Allianz Global Investors U.S. LLC, an investment adviser registered with the U.S. Securities and Exchange Commission; Allianz Global Investors Distributors LLC, distributor registered with FINRA, is affiliated with Allianz Global Investors U.S. LLC; Allianz Global Investors GmbH, an investment company in Germany, authorised by the German Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin); Allianz Global Investors (Schweiz) AG; Allianz Global Investors Asia Pacific Ltd, licensed by the Hong Kong Securities and Futures Commission; Allianz Global Investors Singapore Ltd, regulated by the Monetary Authority of Singapore [Company Registration No. 199907169Z]; Allianz Global Investors Japan Co, Ltd., registered in Japan as a Financial Instruments Business Operator (Registered No. 424) The Director of Kanto Local Finance Bureau (Financial Instruments Business Operator), No. 424, Member of Japan Investment Advisers Association and Investment Trust Association, Japan]; and Allianz Global Investors Taiwan Ltd, licensed by Financial Supervisory Commission in Taiwan.