ECB preview: Only a minor twist - Danske Bank
Next week, one of the key events will the be European Central Bank meeting. According to analysts from Danske Bank, the Board will discuss the easing bias but will deliver only a minor twist and remove its readiness to increase the size of the purchase program while maintaining the flexibility in terms of duration.
“In line with other global central banks, ECB communication has turned hawkish recently with Mario Draghi arguing that in a situation where the economy continues to recover, monetary policy tightening could be needed in order to keep the policy stance 'broadly unchanged'. In our view, these comments were intended to prepare the market for a reduction in QE purchases from next year, which is likely to be announced at the meeting in September. We still expect the ECB to continue its QE purchases but at a reduced pace of EUR40bn per month in H1 18, keeping the end-date dependent on the inflation outlook. That said, we believe it is most likely the ECB will taper towards zero in H2 18.”
“Added to this, the minutes from the June meeting revealed that the ECB discussed whether to revisit the QE easing bias where it signals its readiness to increase the size and/or duration of QE. We expect the ECB to discuss this easing bias at the upcoming meeting but believe it will deliver only a minor twist and remove its readiness to increase the size of QE while maintaining the flexibility in terms of duration. Together with this, the ECB could add that the duration part of QE will be reconsidered at the meeting in September, when the ECB has updated inflation projections.”
“We expect the ECB to have discussed tapering at the upcoming meeting after Draghi rejected such discussions at the latest meeting in June. In our view, such a discussion will be in line with the latest communication that monetary tightening could be needed in order to keep the policy stance 'broadly unchanged'.”
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