ECB meeting

• How to trade the ECB meeting
• What is the ECB?
• What is the ECB meeting?
• Structure of the ECB
• ECB FAQ

How to trade the ECB meeting

The European Central Bank (ECB) meeting can have a huge effect on the markets, causing volatility across currencies, stocks, indices and bonds.

When the ECB raises rates, the euro – and with it the world’s biggest FX pair, EUR/USD – can rise, with fallout for shares, bonds and more. European companies, for example, might find it harder to export goods, causing indices like the DAX to fall.

It isn’t just interest rates, either. The ECB decides on quantitative easing/asset purchasing programmes, which also have a significant impact on many financial markets. So even in times of record-low rates, traders keep a close eye on each meeting.

What is the ECB?

The European Central Bank (ECB) is the central bank for the European Union. It’s responsible for administering monetary policy within the union – one of the largest economic areas globally, comprised of 27 member states.

The Treaty of Amsterdam established the ECB in 1999, and it’s now one of the world’s most influential central banks. The ECB is one of seven European Union institutions enshrined in the EU’s treaty.

The ECB is headquartered in Frankfurt, Germany.

What does the ECB do?

The primary functions of the ECB are to maintain price stability and formulate monetary policy. The ECB makes decisions over financial and economic objectives, interest rates and the Eurosystem’s supply of reserves.

The ECB Governing Council defines price stability as inflation of under (but remaining close to) 2%. That level of inflation should help encourage economic growth and job creation.

The ECB has the monopoly on issuing banknotes in the Eurozone area. It controls the amount of money in the market by controlling currency supply available to EU member states’ central and commercial banks.

The ECB issues weekly announcements on the amount of money supply and the minimum interest rate. Eligible banks can place bids for the ECB funds through auctions, advanced as loans to businesses and individuals.

What is the ECB meeting?

The ECB meeting is where the Governing Council sets the key interest rates for the eurozone. It’s followed by a press conference in which the president and vice-president of the ECB announce and explain the Governing Council’s latest monetary policy decisions.

The Governing Council actually have two types of meetings:

• A non-monetary policy meeting, held twice a month, where the council discusses general issues and tasks
• A monetary policy meeting every six weeks, where it sets interest rates and other measures

The monetary policy meeting (MPM), though, is by far the most important to traders. Ahead of each MPM, the ECB will publish accounts of the previous meeting.

What are the European Central Bank’s interest rates?

The ECB has three key interest rates which get set at Governing Council meetings:

• The interest rate on the primary refinancing operations (MRO). This supplies the bulk of liquidity to the banking system
• The deposit facility rate. Banks use this to make overnight deposits with the Eurosystem
• The marginal lending facility rate. This provides overnight credit to banks from the Eurosystem

What time is the ECB’s monetary policy meeting?

The council’s decisions get announced through a press release at 1.45 pm CET on the day of the meeting, an ECB press conference then follows at 2.30 pm CET.

During this press conference, the ECB officials explain the rationale behind the council’s decisions. The euro’s value versus its peers can come under scrutiny during this conference when the reasons for interest rate settings get revealed.

Structure of the ECB

Four decision-making ECB bodies undertake the objectives of the central bank. These bodies are the Governing Council, Executive Board, the General Council, and the Supervisory Board.

The Governing Council

The Governing Council creates monetary policy for the euro area. They make decisions on interest rates, supply of reserves in the Eurosystem and overall monetary policy.

It has six members elected from the Executive Board and Governors of the national central banks of the eurozone member states.

The Executive Board

The Executive Board implements the Governing Council’s monetary policy and manages the ECB’s day-to-day operations. It consists of the President, Vice-President, and four other executive members appointed by the European Council.

The General Council

The General Council fixes the exchange rates of currencies for countries taking up the euro. Consisting of the President, Vice-President, and Governors of the EU member states’ national central bank, it will continue to exist only until all EU member states have adopted the euro.

The Supervisory Board

The Supervisory Board is responsible for planning and executing the functions of the ECB. It also proposes draft decisions for the Governing Council. It consists of the chair, vice-chair, four ECB representatives, and representatives of national supervisors.

Who is the European Central Bank president?

The current ECB president is Christine Lagarde. The first woman in the post, she has been president since November 2019, when she replaced Mario Draghi. Before taking the job Lagarde was the managing director of the International Monetary Fund (IMF).