What to make of the ECB’s new inflation forecast

The ECB revised its inflation forecast down this week, but we doubt that this has meaningfully changed the outlook for monetary policy. After all, the change was small, and largely reflected tweaks to the assumptions about oil prices and the euro exchange rate. What’s more, after the announcement, the Austrian central bank Governor said that he expects to begin at least the discussion about tapering QE in July. As a result, we still think that the Bank will announce in September its intention to taper its asset purchases to zero in the first half of next year. And while it will then be some time before policymakers are confident enough to raise interest rates, we expect them to begin tightening in 2019.