Central banks and interest rates, what does it mean for markets? The analysis
Cause and effect: the principle of causality also applies to monetary policy. In the Eurozone, it took double-digit inflation rates for the European Central Bank (ECB) to start shrinking its balance sheet. In the meantime, the economy and the states had by now become accustomed to the availability of cheap money. But the golden days are over (at least for now). Now the banks can no longer obtain liquidity from the ECB on favorable terms and between November last year and the end of February they have already repaid around 850 billion euro disbursed as part of targeted long-term refinancing operations.
Furthermore, the central bank is starting to reduce its securities portfolio. In a first phase, which will last until mid-year, the ECB will let securities worth 15 billion euros per month mature without repurchasing them; a volume equivalent to approximately 50% of expected repayments. Is this the beginning of the great “cure” from years of ultra-expansionary monetary policy?
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