The ECB (European Central Bank) is one of the world’s most prominent central banks. Let’s take a look at how the bank operates – and how you can trade the ECB meeting announcements.
How to trade the ECB meeting
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.
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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.
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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).
Latest ECB news
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ECB meeting dates 2023
NOTE: Monetary-policy meetings only
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Who owns the ECB?
All the central banks of each EU member state own the bank’s stock. The ECB directly supervises 124 significant banks holding 82% of the Euro area’s banking assets.
The 27 European Union member states form one of the largest economic areas globally, and the 19 eurozone countries are also a powerful economic force.
What are the Eurosystem and SSM?
The ECB adheres to the protocol of the Eurosystem and the Single Supervisory Mechanism, here is a brief explanation of their functions.
- Eurosystem – The Eurosystem comprises the ECB and member states’ central banks. The Eurosystem handles the practical implementation of ECB policy, such as holding and managing foreign reserves, implementing policy, operating in the foreign exchange market while ensuring the interbank payment system runs smoothly
- Single Supervisory Mechanism (SSM) – The ECB is the EU body responsible for banking supervision. It runs the Single Supervisory Mechanism (SSM) to ensure the European banking system’s safety and financial security. The SSM ensures consistent banking compliance and supervision practices across the EU member country banking systems. The SSM began functioning in November 2014 partly due to the Eurozone banking crisis starting in 2009. All the Eurozone area countries are in the SSM, and non-euro EU countries can choose to join
What is the history of the ECB?
The ECB was created in June 1998 by way of the Treaty of Amsterdam, which amended the Treaty on the European Union.
The ECB replaced the European Monetary Institute (EMI), formed at the second stage of the Economic and Monetary Union (EMU). It was created to cope with the euro’s adoption as the European Union’s common currency.
The ECB obtained complete control on 1 January 1999, once the euro became the Euro area’s official currency. At this time, the national central banks of eleven EU member states transferred their monetary policy responsibility to the ECB.
Win Duisenberg, the former president of the EMI and the Dutch central bank, was the first ECB president. Duisenberg agreed to step down before his complete term, a French national, Trichet, then took over.