Subdued inflation outlook to keep ECB cautious

The ECB’s new forecasts show that it expects inflation of just 1.2% next year and 1.5% in 2018. As the economy is performing well and core inflation has picked up recently, the Bank should still feel confident enough to taper its asset purchases to zero next year. But given that inflation is set to rise only gradually to the near-2% target, we think that the ECB will keep interest rates on hold until 2019.