As a result of the strategic review meeting of the European Central Bank, which it concluded yesterday, policy makers agreed to raise the inflation target to 2% and make room to exceed it when necessary, reported by sources. This change in inflation targeting is more specific and in line with the current situation than the previous target of “below 2%, but close to 2% in the medium term”. The current course of inflation and the risks it entails are putting pressure on the ECB policy to tighten.
It is currently evident that bond yield curves do not price an inflation fear in developed countries. The situation we see in the US yield curve is almost also valid for German bonds. Yesterday we saw a break below -0.30% in 10-year German bund yields and is still at -0.34%. The ECB, unable to ignore the reality of high inflation, made an inflation target change similar to what the Fed did long ago. Although not exactly the same as the Fed’s “2% average target”, in theory, they both have the same direction and purpose, as they will allow inflation above 2% for a while. The low inflation rates of last year are followed by high rates this year and we will see a reduced version of it next year. The change in question points to a more cautious approach to inflation and reflects the situation that the Bank will follow the current inflation path for a while. In any normalization, the Fed seems to be ahead of the curve as yesterday’s minutes also indicated that there could be communication in the coming months. When these timing differences and economic recovery coefficients are reflected in the bond spreads, we will see more significant movements in the markets.
Today, the ECB will announce the results of that strategic review, and we’ll follow President Lagarde’s comments afterwards.
Kaynak Tera Yatırım
Hibya Haber Ajansı
Kaynak: Hibya Haber Ajansı