The interest rate environment changes

Under the very calm surface is the interest rate environment changing. First, as shown on the below graph, the US have already increased their reference rate several times since 2015. In Europe the situation has not changed, with reference rates at zero. But under this very calm surface, the meetings of the European Central Bank (ECB) allow the market to better understand the path that rates will follow.

At the last meeting in March, the president of the ECB said, that it would potentially not any longer be necessary to increase the purchasing of assets. Hence, the amounts bought should remain at 30 billion Euros monthly until the end of September. The ECB could however extend its buys, but the president wanted to reassure the markets by projecting a slightly higher expected GDP growth for 2018 (2.4% vs 2.3% previously). This subtle message implicates that the ECB believes that the economy has improved and that it is time to get ready for future rate hikes. However this rise should not happen in the immediate future and one can rather expect it to happen at best in 2019.