Maintaining a supportive stance

The ECB will leave interest rates at 1.0% at its October policy meeting and is unlikely to signal any significant change in its supportive policy stance for the future. The Bank will probably argue (contrary to our opinion) that its second allotment of 12-month funds will contribute to a pick-up in commercial bank lending. But it should also reiterate that the recovery in the wider economy looks set to be pretty modest. With the risk of deflation lingering, we still see official interest rates on hold for much longer than markets anticipate.