Europe

ECB Watch

ECB Watch

ECB to maintain flexibility in face of Omicron

Just a day after we expect the Fed to prepare the ground for substantially tighter monetary policy in the coming years, policymakers at the ECB will probably commit to doubling their monthly APP purchases to €40bn from April 2022 and continue purchases until at least the end of the year. And while we think they will confirm their intention to end net PEPP purchases in March 2022, they will probably say they could re-start them again if needed. Christine Lagarde’s main message will be that, while risks have increased, the Bank still sees the recent rise in inflation as temporary.

9 December 2021

ECB Watch

ECB insisting that inflation is largely transient

Nobody expects the ECB Governing Council to make any policy changes at next week’s monetary policy meeting. However, Christine Lagarde will address concerns about rising inflationary pressures and we expect her to reiterate that, even if they are stronger than anticipated, they are likely to prove temporary. She will probably also stress that the ECB’s current guidance implies that rate hikes are further away than suggested by financial markets. Otherwise, the focus will be on when and how to end the PEPP, decisions on which are scheduled for December.

21 October 2021

ECB Watch

Slower purchase pace in sight, but rate hikes are not

The ECB is likely to use next week’s meeting to prepare the ground for a very gradual reduction in asset purchases under the emergency PEPP. But, taking a leaf out of the Fed’s book, it will stress that this does not mean that rate hikes are getting closer, or even that policy is being tightened. Looking ahead, we think the ECB is most likely to end its PEPP purchases by next March but simultaneously step up its APP purchases. And it will leave its deposit rate unchanged until beyond 2025.

2 September 2021
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ECB Watch

New guidance will set the bar higher for rate hikes

The ECB will set out next week what its new strategy implies for its monetary policy. Having nudged up the target to a symmetrical 2% and stressed that it will tolerate some overshooting, the Governing Council will amend its policy statement to underline its commitment to “forceful” and “persistent” policy accommodation. But we do not expect any changes to its policy rates or the pace of asset purchases.

ECB Watch

Preparing the ground for a super-dovish taper

We think the ECB will tweak its monetary policy statement next week by pledging to maintain favourable financing conditions but not renewing its pledge to keep PEPP purchases at the recent “significantly higher” pace for the next three months. This would prepare the ground for a very gradual taper beginning in Q3 and for net PEPP purchases to come to an end next March. But with expected inflation likely to remain well below target next year, we think policymakers will increase monthly APP purchases when the PEPP ends.

ECB Watch

ECB to stick to current PEPP purchase pace

After promising a “significant” increase in bond purchases in March, the ECB Governing Council will not make any policy changes at next week’s meeting. Officials may try again to explain how they judge whether financing conditions are favourable, but the more they say, the less clear their message seems to be. Meanwhile, the Bank will continue with PEPP purchases of around €15-20bn per week for the coming month or two, meaning bond yields will probably stay around their current levels.

15 April 2021

ECB Watch

Hesitant ECB will probably step up bond purchases

At next Thursday’s monetary policy meeting we expect the ECB to nudge up its forecast for inflation in 2021 and nudge down its forecast for GDP growth, but stress that inflation is still likely to fall short of the near-2% target over the medium term. With no prospect of any change to its policy settings, the focus will be on the Bank’s efforts to explain how and when it would step up bond purchases in response to rising bond yields. On balance, we think the upshot will be higher purchases and slightly lower yields in the coming weeks.

4 March 2021

ECB Watch

ECB to leave policy settings unchanged

Having adjusted their policy settings in December, policymakers will be happy to sit out the meeting next week and repeat the mantra that they will do whatever is required to support the euro-zone through the pandemic. Their main concern will be that rising virus numbers and the slow vaccination rollout mean that restrictions stay in place beyond Q1, in which case the recovery will be delayed. But if so, the ECB would simply extend its current support measures for even longer.

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