Washington, D.C., June 3, 2015 - The European Central Bank Governing Council reviewed a brightening landscape at today's monetary policy meeting as financial conditions remain favorable, real economy indicators are solid and inflation has picked up, according to the IIF's updated "Draghi's Dashboard".
"Our inflation sub-index is finally climbing out of "˜red' territory, as headline inflation seems to have bottomed out and is now on the right track - a signal that was reinforced by Tuesday's report of an acceleration in Euro Area core inflation in May," said Sonja Gibbs, Director of Capital Markets at the IIF. "The rise in our sub-index also reflects a welcome increase in long-term inflation expectations."
The Dashboard includes 17 selected financial, real economy and inflation variables which are aggregated into three components (sub-indexes) to monitor the transmission of quantitative easing through the Euro Area economy.
The Dashboard evaluates to what extent monthly movements in each of these variables are in line with the ECB's objectives using a "traffic light" color code; dark green indicates movement in line with the ECB's intentions and dark red the opposite.
The IIF noted that as efforts to end the stalemate between Greece and its creditors continue, market strains have increased with peripheral Euro Area bond spreads widening sharply. Nonetheless, overall financial conditions remain supportive: equity markets remain well above their six-month trend, the euro is some 7.5 percent weaker against the dollar than at the beginning of the year, and German bond yields remain at low levels despite a 50bp jump since the last ECB monetary policy meeting and a further sharp leg up after yesterday's inflation data.
The IIF reported that real economy variables have plateaued in February and March. Weaker bank lending to corporates was offset by somewhat stronger manufacturing Purchasing Managers Index (PMI) data. Manufacturing PMI figures above 52 - signaling moderate expansion - in March, April, and May of this year mark the first readings above 52 since May 2014.
The IIF will release updated versions of the Dashboard coinciding with future ECB monetary policy meetings.
The Institute of International Finance is the global association of the financial industry, with close to 500 members from 70 countries. Its mission is to support the financial industry in the prudent management of risks; to develop sound industry practices; and to advocate for regulatory, financial and economic policies that are in the broad interests of its members and foster global financial stability and sustainable economic growth. IIF members include commercial and investment banks, asset managers, insurance companies, sovereign wealth funds, hedge funds, central banks and development banks. For more information visit www.iif.com.