Negative rates and QE forever?

The change in the ECB’s policy guidance, announced yesterday, strengthens our view that the Bank will leave its deposit rate unchanged at -0.5% until beyond 2025 and will continue with large-scale asset purchases for a long time yet. Meanwhile, although we don’t think the surge in virus numbers will derail the economy, it may take the shine off the recovery. Next week we expect to learn that euro-zone GDP rose by around 1.5% q/q in Q2 and that inflation edged above 2% again in July.
Andrew Kenningham Chief Europe Economist
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European Data Response

EZ Unemployment (Oct.)

While labour market conditions continued to improve in October, the recent deterioration of the Covid situation and increased uncertainty due to the Omicron variant are likely to mean the recovery takes a breather over the next couple of months, just as it did when restrictions were in place at the start of 2021.

2 December 2021

European Economics Update

Macron on course to defeat far-right challengers

The confirmation earlier today that far-right pundit Eric Zemmour will stand in France’s presidential election next spring comes as no surprise given his rise in the polls. But French President Emmanuel Macron still looks on course to win a second term, defeating the far-right candidates and keeping France on a pro-European, reformist track. In this Update, we answer five key questions about the election.

30 November 2021

European Data Response

Euro-zone Flash HICP (Nov.)

November’s inflation data were yet another surprise on the upside. The Omicron variant has increased the level of uncertainty even further but for now we suspect that it will have a fairly small impact on inflation. Still, headline inflation looks set to remain above target until at least the end of next year.

30 November 2021

More from Andrew Kenningham

European Economics Update

ECB reinforces commitment to keep rates low

The ECB followed through on its strategy review today by raising the bar for interest rate hikes in language which was probably a touch more dovish than expected. The Bank made no change to its guidance on asset purchases, but we think it will continue large-scale purchases for at least the next two years.

22 July 2021

European Economic Outlook

Strong rebound and temporary rise in inflation

The euro-zone is on the way to an almost full recovery. We expect Germany to regain its pre-pandemic level of activity later this year and the tourist-dependent southern countries to do so next year. The Delta variant may lead to some voluntary social distancing or self-isolating and perhaps limited restrictions over the winter, but we doubt that it will derail the recovery. Inflation will rise further than most expect in the coming months due to rising input costs and supply bottlenecks. But with wage agreements and inflation expectations remaining low, it will drop back and stay lower than most expect over the medium term. The ECB is likely to step up its standard Asset Purchase Programme substantially when its emergency purchases end next March and leave its deposit rate at -0.5% until beyond 2025, which is much later than investors expect.

16 July 2021

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.

15 July 2021
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