A more positive tone, but tighter policy is distant

The ECB’s decision to tighten future lending criteria and the fact that its bond purchases have ground to a near halt suggest that the Bank is again phasing out its unconventional policy support. The recent pick-up in indicators of economic activity and the favourable results of bank stress tests might lead the Bank to strike a slightly more upbeat tone. But with banks still unwilling to lend and fiscal tightening yet to take hold, the ECB will remain cautious. It will be years, not months, before official interest rate hikes are necessary and we would not rule out further unconventional policies as the threat of deflation resurges.