Katch Invest

A new era in monetary policy

A new era in monetary policy

FRANKFURT, GERMANY - JUNE 1, 2019: Seat of the European Central
By Pascal Rohner - Katch Investment Group CIO

The Covid-19 pandemic continues to spread with more than 30 million infections and 900,000 deaths. The good news is that there has been made a lot of progress in treatments and the development of vaccines, but the outbreak of second waves shows that the pandemic is far from being under control. The future path of the pandemic remains undoubtedly the main economic driver for the time being. 

Nevertheless, it looks like the worst scenarios could be avoided. Major central banks have played an important role in combating the economic damage caused by the pandemic. Unprecedented monetary stimulus was necessary to prevent the Covid-19 crisis from turning into a larger depression. So far, the implemented measures since March 2020 have been extremely successful. 

In the last days, central banks came back into the spotlight with important updates around the future path of monetary policies around the world. 

First, the European Central Bank (ECB) expectedly left its policy rate unchanged at -0.5%. The ECB slightly revised its 2020 GDP outlook: It expects a less severe GDP contraction of 8%, versus its previous estimate of -8.7%. The estimates for 2021 and 2022 remain unchanged at 5.0% and 3.2%, respectively. Also, the inflation outlook remains unchanged at 0.3% for 2020, 1.0% for 2021 and 1.3% for 2022. Finally, one of the most relevant comments by Christine Lagarde, president of the ECB, was that “it is not necessary to overreact to the appreciation of the euro” because, although it may affect inflation in the medium term, the Central bank does not have a rate exchange rate target, therefore, no measure to influence the exchange rate are expected. 

Second, the Bank of England (BoE) kept its benchmark rates at 0.1%, as expected. However, it said that if the economy was facing rising unemployment or a second wave of contagions that could endanger the economic recovery, it would not rule out implementing negative reference rates. This comment caused a drop in the British sterling pound. 

Finally, the most important central bank announcement came from the Federal Reserve. Chairman Jay Powell fleshed out a new era monetary policy in different speeches during the last weeks. The most important announcements were made at the virtual Jackson Hole symposium and the press conference that concluded the regular two-day FOMC meeting. 

At first glance, the speeches appeared relatively uninspiring. However, listening carefully and reading between the lines, they probably triggered the most important policy change since 2012. At that time, Fed Chair Ben Bernanke declared that the US Central bank would continue with its dual mandate of price stability and full employment, but he changed the inflation target from 1.5% to 2.0%. Now, Jay Powell has indicated that the Fed is targeting “average” inflation of 2% and that it will tolerate higher inflation for “some time”. Since inflation has been below 2% for quite some time, most market participants agreed that the announcements probably signalled that interest rates might well remain at the current low levels until at least 2023.

It is too early to fully understand the consequences of the new policy regime. The ongoing stimulus might help speed up the economic healing process, but it might also increase the appetite for riskier asset classes and cause bubbles in certain areas. The more logical conclusion is that conservative investors will continue to have a hard time to meet their return target, given the low yield environment in traditional fixed income markets. Therefore, they should continue to explore fixed income alternatives that offer more attractive risk-adjusted returns. 

By accessing this website content, you agree to be bound by the conditions.

It is important that you read the following page before proceeding, as it explains certain legal and regulatory restrictions applicable to the distribution of this information. By accessing any content of this website, you agree to be bound by the conditions. If you do not agree to the conditions, please exit the website. Neither Katch Investment Group; Katch Fund Solutions – Global Lending Opportunities Fund, Katch Fund Solutions – Real Estate Lending Fund, or Katch Fund Solutions – Factoring Fund (the “Funds”) will be responsible for any misrepresentations you may make in gaining unauthorized access. It is your responsibility to inform yourself of and to observe all applicable laws and regulations of the relevant jurisdiction. This website content is intended to be for information purposes only and it is not intended as promotional material in any respect. The information contained in this website (including marketing presentations, factsheets, and articles) does not constitute a distribution, an offer to sell or the solicitation of an offer to buy any securities in any jurisdiction in which such offer or invitation is not authorized and/or would be contrary to local law or regulation. This website is not intended for any “U.S. Person” as defined in the Prospectus. For more information write us at info@katchinvest.com. The information contained on this site, and on downloadable materials is believed to be accurate at the date of publication, but no warranty of accuracy is given, and the information is subject to change without notice. Any opinions or estimates included herein constitute a judgment as of this date and are subject to change without notice. If you are in any doubt about the information contained herein please consult your stockbroker, solicitor, accountant, bank manager or other professional adviser. All content and information are being made available free of charge. By proceeding you agree to the exclusion of any liability in respect of any errors or omissions contained in it. No liability is accepted by any person within Katch Investment Group or the Funds for any losses or damage arising from the use or reliance on the information contained herein including, without limitation, any loss of profit, or any other damage direct or consequential.

Investment in emerging market involves risk factors and special considerations which may not be typically associated with investing in more developed markets. Political or economic change and instability may be more likely to occur and have a greater effect on the economies and markets of emerging countries. Adverse government policies, taxation, restrictions on foreign investment and on currency convertibility and repatriation, currency fluctuations and other developments in the laws and regulations of emerging countries in which investment may be made, including expropriation, nationalization or other confiscation could result in loss to the Funds. The risk factors referred to above are not an exhaustive list and reference should be made to the relevant Prospectus. The value of investments and the income from them may go down as well as up and you may not get back your original investment. The Funds are intended for sophisticated investors who can accept the risks associated with such an investment including a substantial or complete loss of their investment. Past performance is not necessarily a guide to future performance. A person within Katch Investment Group and/or Katch Fund Solutions, its affiliates, their directors and the investment funds/accounts it manages may or may not have a position in or with respect to any securities mentioned herein.This website is solely reserved to investors that are located in France and defined as Professional Investors as per the AIFM Directive, or investors that are located in Switzerland and defined as Well-Informed Investors as per the Luxembourg act of 23 July 2016 on reserved alternative funds.

Special note for investors in Switzerland: Home country of the Fund: Luxembourg. The representative in Switzerland is 1741 Fund Solutions AG, Burggraben 16, CH-9000 St. Gallen. The Swiss Paying Agent in Switzerland is Tellco LTD, Bahnhofstrasse 4, 6430 Schwyz, Switzerland. The offering memorandum and other key investor information document or fund contract as well as the annual reports may be obtained free of charge from the representative. In respect of the units distributed in and from Switzerland, the place of performance and jurisdiction is the registered office of the Representative.

If you have read, understood, and accepted above conditions, you can enter.