Frederik Ducrozet Profile picture
Sep 11, 2020 6 tweets 1 min read Read on X
It would have been great to start yesterday's statement by Philip Lane's introductory remark in today's blog: "there is no room for complacency".
It would have been great to make this important point about inflation when discussing the August HICP print: "underlying price pressures have weakened due to subdued demand and the scale of labour market slack".
It would have been great to be more straightforward when it comes to the implications of EUR appreciation: "the recent appreciation of the euro exchange rate dampens the inflation outlook".
Also, "the scale of the upward revision in core inflation has been significantly muted by the appreciation of the euro exchange rate."
It would have been great to insist on the most important signal yesterday: "it should be abundantly clear that there is no room for complacency".
Finally, it would have been great to leave the door more open to a move in December: "Over the coming months, a richer information set will become available that will help to inform the calibration of monetary policy".

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More from @fwred

Aug 28, 2023
🇪🇺 Euro area M3 money growth contracted in July, for the first time in 13 years. However, it's important to put things in perspective. 🧵 Image
M3 annual growth continues to be dragged lower by the narrow money aggregate M1 which contracted by a record amount in nominal and real terms. Image
The contraction of M1 has been driven by the decline in overnight deposits, down 10% YoY. However this has been the result of a shift from overnight to longer-term deposits starting in Q4 2022, with cash seeking higher yields. The money is not 'moving out' of the system. Image
Read 6 tweets
Aug 23, 2023
🇪🇺 Four takeaways from euro area PMIs.
1. Services sector contraction led by Germany, with early signs of labour market weakening. A sign that monetary policy transmission is working. Image
2. Early signs of stabilisation in the manufacturing sector, but external demand remains subdued. Image
3. Price pressures have increased somewhat in the German services sector, but no sign of broad-based acceleration in prices. The ECB can be patient. Image
Read 4 tweets
May 2, 2023
🇪🇺 Chartstorm on euro area bank lending data (March M3, credit and Bank Lending Survey).
In short: more tightening than expected and "persistent weakening" of loan dynamics.
Likely to cement the case for a step-down to 25bp ECB rate hike(s). 🧵 Image
The ECB's Bank Lending Survey was conducted between 22 March and 6 April, taking into account recent events.
Banks tightened further "substantially" their credit standards for loans to enterprises in Q1 (the largest such tightening since the sovereign debt crisis). Image
While banks expect a more moderate tightening going forward, demand for loans "decreased strongly" in Q1, with the main drags coming from higher interest rates and weaker investment prospects. Image
Read 9 tweets
Mar 27, 2023
🇪🇺 Euro area money supply growth is declining faster than expected (*before* the recent events).
M1 growth, including currency and overnight deposits, contracted by a record 2.7% in February.
Credit growth remained weak overall. 🧵
In real terms, M1 growth is now down 10% YoY, consistent with a collapse in economic growth. 😱
Now given the starting point for monetary policy and money supply, the old relationships may not hold. A key focus should be on the asset side of the banks' balance sheet.
Bank credit remained weak in February, down for loans to households and stabilising for loans to corporates. That was before the recent events, and the direction of travel looks clear. Question is much banks will tighten eventually (Bank Lending Survey out on 2 May will be key).
Read 5 tweets
Feb 2, 2023
🇪🇺 Yes, the ECB is going to hike rates by 50bp today, more than the Fed.
Yes, there's room for markets to re-price the terminal rate higher, above 3.50%.
But will it be a hawkish fireworks? Not so sure. 🧵
The hawkish reality check came in December, when the ECB committed to raising rates "significantly at a steady pace to reach levels that are sufficiently restrictive". The sentence should be adjusted as the ECB gets closer to peak rates.
The ECB is very likely to hint at another 50bp hike in March, but not beyond. There's a case to shift from a "steady pace" to a more moderate pace of tightening beyond March. @lagarde is likely to repeat that future decisions will be data-dependent (staff projections).
Read 7 tweets
Dec 7, 2022
🇧🇪 Meet the Banque Nationale de Belgique whose shares are down 17% today after they warned against financial losses.
The BNB is a special case, being 50% privately owned. But many central bank will make large losses in coming years - a🧵on our latest note. Image
Here's the @NBB_BNB_FR press release confirming the profit warning issued in September.
They expect to end 2022 with €600-800 million losses, and more importantly around €9 billion losses by 2027. This would exceed their financial buffers of €7.08bn. nbb.be/doc/ts/enterpr…
@NBB_BNB_FR The main driver of financial losses is the interest paid on bank deposits. A 25bp increase in ECB policy rates raises the BNB's costs by around €310m on an annual basis. Investment portfolios won't help, except for maturing bonds which are reinvested at higher interest rates.
Read 10 tweets

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