ECB: Nagel Sticks To Previous Stance On Current MonPol; Speaks on Liquidity

Bundesbank President Nagel's speech does not contain any striking revelations on near-term monetary policy. Nagel sticks to his recent stance of considering current policy to be neutral, and avoiding any signals for the path ahead.

On current monetary policy:

• "Eurosystem calculations based on various models estimate the nominal natural interest rate at the end of 2024 to be between 1.5 and 2.5 percent"..."By comparison, following the key interest rate cut at the monetary policy meeting in early June, the deposit rate relevant for the monetary policy stance is 2 percent. This is exactly in the middle of the aforementioned range. It is therefore likely that the Eurosystem's monetary policy is currently within the neutral range, although the estimates are subject to high uncertainty".
• "The biggest uncertainty factor for our future monetary policy course is – besides developments in the Middle East – undoubtedly the unpredictableUS- Trade policy".
• "The uncertainty is exceptionally high. And this is the reason why theECB- Council is currently more data-dependent than ever and makes decisions from meeting to meeting. Therefore, if you were hoping for a detailed interest rate outlook from me, I regret to disappoint you". 

Speaking on the structural liquidity and future structural operations:

• "By agreeing on structural operations, we have already set the fundamental course very early on. However, the precise design of the structural operations and their relationship to one another after the expiration of the monetary policy securities holdings are questions for the future. These decisions still have time to be made".
• "In a structural portfolio, for example, fewer bonds with longer maturities and more bonds with shorter maturities could help reduce the impact on the term premium. Sensibly limited maturities of structural refinancing operations would allow for a timely response to potential declines in liquidity needs".
• "One thing is clear: the target volume of a structural portfolio should be in a reasonable proportion to the volume of bonds available for purchase. To avoid market distortions, only small portions of individual issues should be purchased".

On the ECB's QT programme:

• "While the macroeconomic effects of quantitative easing have been extensively studied, quantitative tightening, particularly for the euro area, remains a largely unexplored field. However, the overall impact of quantitative tightening is likely to be weaker than that of quantitative easing".
• "Taken together, the phasing out of our asset purchase programs should therefore have only a minor impact on the monetary policy stance. We also indirectly take this effect into account when setting the key interest rate level. Medium- and long-term interest rates are directly incorporated into the Eurosystem's inflation forecasts, which form a key basis for our monetary policy decisions".