Non-standard monetary policy in the euro area Economics Roundtable discussion (8 September 2017)

Transcription

1 Non-standard monetary policy in the euro area Economics Roundtable discussion (8 September 2017) Gillian Phelan

2 Outline Monetary policy action Interest rate policy Non-standard measures Monetary policy transmission Macroeconomic context Monetary policy stance Discussion: an Irish perspective

3 Standard monetary policy measures Interest rate policy: The Main Refinancing Operation (MRO) rate has traditionally been the main policy rate which money markets tracked Deposit Facility (DF) rate sets the floor for market rates May 2009 ECB cuts MRO to 1% June 2014 ECB cuts DF rate by 10bps to -0.10% Main Refinancing Operations Marginal lending Deposit facility EONIA ECB key interest rates (per cent) Source: European Central Bank.

4 Non-standard monetary policy measures Non-standard measures: Liquidity and funding measures Outright purchases in malfunctioning market segments (OMT) Forward Guidance Credit easing and asset purchases Negative interest rate policy Eurosystem balance sheet (monetary policy operations, billion ) 2,500 2,000 1,500 1, '17 main refinancing operations (MRO) longer-term refinancing operations (LTRO and TLTRO) terminated programmes expanded Asset Purchase Programme (APP) Source: European Central Bank

5 Monetary policy transmission Credit channel Asset valuation channel Assets purchases Portfolio rebalancing channel Exchange rate channel Expectations channel

6 Feb 2011 May 2011 Aug 2011 Nov 2011 Feb 2012 May 2012 Aug 2012 Nov 2012 Feb 2013 May 2013 Aug 2013 Nov 2013 Feb 2014 May 2014 Aug 2014 Nov 2014 Feb 2015 May 2015 Aug 2015 Nov 2015 Feb 2016 May 2016 Aug 2016 Nov 2016 Feb 2017 May 2017 Aug 2017 Monetary policy transmission Government bond yields Lending rates to the real economy 10 Year Bond Yields (%) Ireland Italy Spain Asset Purchase Programme Implemented Germany France Portugal Notes: For NFCs the interest rate on loans is up to one year of fixation (the vast majority of loans); For households- the volume-weighted average interest rate on mortgages across fixation maturities (necessary because some countries in Europe do almost all variable rate lending and some do almost all long-term fixed rate lending) Source: Bloomberg Source: Source: ECB IMIR, CBI calculations

7 Feb 2014 Apr 2014 Jun 2014 Aug 2014 Oct 2014 Dec 2014 Feb 2015 Apr 2015 Jun 2015 Aug 2015 Oct 2015 Dec 2015 Feb 2016 Apr 2016 Jun 2016 Aug 2016 Oct 2016 Dec 2016 Feb 2017 Apr 2017 Jan 2011 Apr 2011 Jul 2011 Oct 2011 Jan 2012 Apr 2012 Jul 2012 Oct 2012 Jan 2013 Apr 2013 Jul 2013 Oct 2013 Jan 2014 Apr 2014 Jul 2014 Oct 2014 Jan 2015 Apr 2015 Jul 2015 Oct 2015 Jan 2016 Apr 2016 Jul 2016 Oct 2016 Jan 2017 Apr 2017 Jul 2017 Euro area Macroeconomic trends Contribution to growth and Inflation Annual Euro Area GDP Growth Rate (%) 2.50% Euro area employment ( m) % 3.0% 2.5% Inflation (%) 2.00% 1.50% % 1.5% 1.0% 1.00% 0.50% % 0.0% -0.5% 0.00% % Total Euro Area Employment (Millions) Annual Growth Inflation Core Inflation Source: ECB Macroeconomic Projection Exercise, Sept 2017

8 Feb 2014 May 2014 Aug 2014 Nov 2014 Feb 2015 May 2015 Aug 2015 Nov 2015 Feb 2016 May 2016 Aug 2016 Nov 2016 Feb 2017 May 2017 Aug 2017 Nov 2017 Feb 2018 May 2018 Aug 2018 Nov 2018 Feb 2019 May 2019 Aug 2019 Nov 2019 Mar 2011 Jun 2011 Sep 2011 Dec 2011 Mar 2012 Jun 2012 Sep 2012 Dec 2012 Mar 2013 Jun 2013 Sep 2013 Dec 2013 Mar 2014 Jun 2014 Sep 2014 Dec 2014 Mar 2015 Jun 2015 Sep 2015 Dec 2015 Mar 2016 Jun 2016 Sep 2016 Dec 2016 Mar 2017 Jun 2017 Sep 2017 Dec 2017 Mar 2018 Jun 2018 Sep 2018 Dec 2018 Mar 2019 Jun 2019 Sep 2019 Dec 2019 Euro area macroeconomic projections ECB projections for growth and Inflation Annual Euro Area GDP Growth Rate (%) Euro area employment ( m) 3.50% 2.50% % 2.50% Inflation (%) 2.00% % 1.50% % 1.00% 1.00% % % 0.50% % % 0.00% Total Euro Area Employment (Millions) ECB Projection (September 2017) Annual Growth Inflation Core Inflation ECB Projection Inflation ECB Projection Core Inflation Source: ECB Macroeconomic Projection Exercise, Sept 2017

9 Current Monetary Policy Stance We decided to keep the key ECB interest rates unchanged. We expect them to remain at their present levels for an extended period of time, and well past the horizon of our net asset purchases. Regarding non-standard monetary policy measures, we confirm that our net asset purchases, at the current monthly pace of 60 billion, are intended to run until the end of December 2017, or beyond, if necessary, and in any case until the Governing Council sees a sustained adjustment in the path of inflation consistent with its inflation aim. (Mario Draghi, September 2017)

10 Jan-99 Oct-99 Jul-00 Apr-01 Jan-02 Oct-02 Jul-03 Apr-04 Jan-05 Oct-05 Jul-06 Apr-07 Jan-08 Oct-08 Jul-09 Apr-10 Jan-11 Oct-11 Jul-12 Apr-13 Jan-14 Oct-14 Jul-15 Apr-16 Jan-17 Current monetary policy stance Rates are at historic lows globally and expected to rise but not to return to previous norm Historical 3 month money market interest rates (%) 5 4 EONIA Forward Curve - 8 years ago, 4 years ago and now T T+1 T+2 T+3 T+4 T+5 T+6 T+7 T+8 T+9 T+10 Euro Area United Kingdom United States Japan Sep-17 Sep-13 Sep-09 Source: Eurostat Source: :Bloomberg, CBI calculations

11 Monetary policy stance Sustained adjustment in the path of inflation (SAPI) => Inflation 1. that is on a path to levels below, but close to, 2% within a meaningful medium-term horizon 2. will be durable and stabilise around those levels with sufficient confidence 3. and is self-sustained, meaning it will maintain its trajectory even with less support from monetary policy And; the relevant metric should be euro area inflation.

12 The Irish perspective Households millon 102, ,000 Household deposits (All maturities) per cent Change in disposable income after mortgage repayments for a given change in the mortgage rate in Ireland Change in disposable income after mortgage repayments for a given change in (medians) mortgage interest rate (medians) Aged % 98, % 96, % 94, % 92, , % Outstanding stock of HH deposits HH new deposit rates -5% -6% Simulated interest rate change +1% +2% Source: Money and Banking Statistics, Central Bank of Ireland calculations Source: Fasianos et al., Central Bank of Ireland

13 The Irish perspective Issues for discussion Unintended side effects of accommodative monetary policy on Inequality? on financial stability? Looking ahead at impact of less accommodative monetary policy on sovereign yields? on deposits and lending? on exchange rates? Symmetric impact?