Ana SayfaGündemModerate tightening process in monetary policy

Moderate tightening process in monetary policy


Precaution against market uncertainty… While major global central banks begin to put more emphasis on tightening policies against inflation, the crisis potential of economies and their sensitivity to recent geopolitical risks will be the distinguishing force. In the latest European Central Bank statements, we interpret a perspective regarding the general direction of monetary policy to be advanced with a moderate tone against the uncertainty conditions in the markets. ECB statements show that a gradual process will be followed in the execution of monetary policy and this process will contain a degree of flexibility and prudence against high risk conditions.

Comparison of ECB effective interest rate and Fed trade-weighted dollar index… Source: Bloomberg

Money market possibilities… Money markets expect an interest rate hike from the European Central Bank this year, which is thought to be possible after completing the asset reduction program in the third quarter. The Central Bank is advancing its planning to reduce its asset purchase program. Asset purchases will be reduced by 40 billion euros for April and 20 billion euros for May and June. The central bank displayed a flexible tone, saying the third-quarter calibration of net purchases will depend on incoming data and reflect an evolving assessment of the outlook.

Comments on policy rates were a little more open-ended. The ECB said rates will rise “for a while” after net bond buying ends, and any rate hikes will be gradual, depending on the course of inflation.

Conclusion? While many major central banks have started to implement aggressive monetary policies on a global scale, it is seen that the European Central Bank will tolerate loose monetary policy for a while. We expect the Fed to tighten policy more than most other major central banks. This divergent path of the Fed and its monetary policy and being ahead of other major economies in terms of economic performance may inevitably mean a higher comparative dollar performance in the hard currency class.

Uncertainty about whether Europe will stop buying energy from Russia, and the potential for recession if such an energy deficit occurs, will likely point to a moderate process, not a rapid tightening path.

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