ECB on hold despite deflation risk

With the measures announced in June seeming tohave some positive effects on financial marketconditions, the ECB is unlikely to announceadditional policy support this month. But furthersigns of economic weakness and the persistentlylow rate of inflation suggest that deflation risks inthe euro-zone have not receded. Ultimately, wethink that the Bank will respond with a broaderprogramme of asset purchases and we expectPresident Mario Draghi to reiterate this month thatsuch policies fall within the ECB’s remit.