Financial Event: ECB Meeting
What is the ECB?
The ‘European Central Bank’ (ECB) is the institution that serves as a collective central bank for 19 nation member states of the European Union that have adopted the Euro as their currency. The ECB is primarily preoccupied with maintaining stability in prices throughout the Eurozone and with preserving the purchasing power of the single currency. Price stability and a strong Euro are also the major goals of the European Union at large, since job creation, economic growth and prosperity are dependent on price stability.
The ECB has its own governing body called the Governing Council. It consists of 19 governors, one for each member state’s national central bank, and 6 Executive Board members. The Council meets frequently to decide on the monetary policy of the Eurozone, interest rates, reserve supplies and fiscal goals for the Euro and forms the guidelines on policy implementation. The long-term goal is to achieve a constant inflation rate of under 2% across the entire Eurozone.
Next ECB Meeting
The next ECB meeting is scheduled for 11 March 2021
. Regular meetings are held every 6 weeks.
|Monetary policy meeting and Announcement
||Non-monetary policy meeting
How does the ECB meeting affect traders?
Governing Council meetings are important dates in trading calendars because these meetings define the official interest rates for the entire Eurozone and the Euro single currency system.
National Central Banks (NCBs) are expected to use the following rates when entering transactions with commercial banks:
- Marginal Lending Rate: The rate for loans overnight
- Deposit Rate: The rate for deposit costs with NCBs
- Minimum Bid Rate: The rate for one-week loans
ECB policies have the power to strongly affect the interest rates of commercial banks, and other money lending institutions, by influencing spending and inflation in the Eurozone.
Of course, traders and investors are particularly concerned about the impact of ECB policy on demand for stocks, bonds, currencies and other securities, which may cause them to change their strategies. Many traders will therefore try to predict which way monetary policy is heading ahead of each meeting.
Because ECB decisions on policy can impact Stock, Bond, Currency and other Securities demand, traders and investors are trying to forecast where monetary policy will be heading before each ECB meeting, and they proceed adjust their plans accordingly.
Markets to watch
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Why is ECB monetary policy important to traders?
Because if their predictions on ECB monetary policy are correct, then they can streamline their portfolios before any announcement and thus end up maximizing their profits while limiting their losses to a minimum at the same time.
Interest rate hikes and spikes usually cause ripple effects that reduce Stock and Bond value but increase the purchasing power of the euro in relation to other currencies. Lower interest rates on the other hand, can have the opposite effect.
Traders will therefore look at the composition of the Governing Council, the distribution of voting rights between countries, and broader economic factors such as Brexit, to make predictions about which way the ECB will vote.
To make their predictions on where the ECB policy will be headed, traders look into matters such as the composition of the Governing Council, the distribution of EU voting rights and other broader economic factors relevant to the Euro and the Eurozone such as Brexit.