US DATA: Existing Home Sales Pick Up In February, But Still At Depressed Levels

Some more detailed excerpts from Cipollone’s speech, covering the balance sheet’s impact on the monetary policy stance and its transmission:

• “An evolving economic landscape suggests that balance sheet policies could be increasingly useful as monetary policy instruments”
  • “First, the non-bank financial sector has grown considerably over time and is becoming increasingly relevant in the funding of the real economy”.
  • “Second, geopolitical fragmentation means that the global economy is becoming more shock prone and subject to higher levels of uncertainty”
• “The decline in excess liquidity warrants careful monitoring, as it could exert additional tightening pressures on financial and financing conditions, potentially exceeding the intended policy stance”.
• “The ECB’s balance sheet has been reduced at a faster pace than those of central banks”…” much of this decline can be attributed to banks’ repayments of TLTRO loans”
• “Our balance sheet policy instruments continue to be a crucial item in our toolbox. The expectation that we will use them if necessary protects the smooth transmission of our monetary policy and reduces the likelihood that we will need to use these tools in the first place.
• “Moreover, in an environment of heightened uncertainty, even in the context of excess liquidity, we need to remain prudent and be ready to step in should another shock emerge. We should maintain the flexibility to swiftly expand liquidity facilities if stressful conditions arise”.

ECB Executive Board member Cipollone's speech at today's MNI event is here. Some initial highlights:

• “Policy rates remain our primary instrument and will therefore continue to attract the most attention. But we should not underestimate the important role that our balance sheet policies have played over time as a component of our overall monetary policy stance and in ensuring the smooth transmission of our monetary policy to the real economy”.
• “In the tightening phase our rate decisions and balance sheet policies complemented each other, but they are now going in opposing directions.”. Two implications:
  • “ First, it contributes to a steepening of the yield curve”
  • “Second, it may affect credit supply. Declining levels of central bank liquidity could constrain banks’ ability to extend credit, resulting in tighter credit conditions”
• “In setting the policy stance, we therefore need to consider the impact of the overall set of financial conditions resulting from our interest rate and balance sheet policies”
• “In the past, abundant levels of liquidity have acted as a safeguard against spikes in liquidity needs that emerged regardless of where our rates stood. With this in mind, we need to carefully monitor the transition from abundant to less ample excess liquidity, mindful of the potential implications for financial stability”.

Reuters reports that Russian Foreign Minister Sergei Lavrov has claimed in a press conference that the US and Russia have agreed to "remove barriers for diplomatic missions" and "to appoint envoys as soon as possible", following talks in Riyadh with a US delegation led by US Secretary of State Marco Rubio. Lavrov added: "There was also high interest to lift barriers for economic cooperation".

• Lavrov said the "talks were useful, we listened and heard each other" and "agreed to form process for Ukraine conflict settlement". Lavrov added, "we also agreed to create conditions to restore our cooperation in full".

According to a US State Department readout of the meeting, US and Russia officials agreed to four principles: 

1. "Establish a consultation mechanism to address irritants to our bilateral relationship with the objective of taking steps necessary to normalize the operation of our respective diplomatic missions.
2. "Appoint respective high-level teams to begin working on a path to ending the conflict in Ukraine as soon as possible in a way that is enduring, sustainable, and acceptable to all sides.
3. "Lay the groundwork for future cooperation on matters of mutual geopolitical interest and historic economic and investment opportunities which will emerge from a successful end to the conflict in Ukraine.
4. "The parties to today’s meetings pledge to remain engaged to make sure the process moves forward in a timely and productive manner."