Will the ECB change course if growth stays strong?

ECB President Mario Draghi last week reiterated the plan to buy assets throughout this year and keep interest rates at or below current levels for an extended period. But he also explained that additional interest rate cuts or non-standard policies are now less likely to be required. This raises the question of whether sustained strong growth might prompt policy normalisation to begin before long. But Mr Draghi stressed again that the Bank will await firm evidence of a sustained rise in inflation and wage growth before considering a change of course. And Germany’s experience, where the output gap closed some time ago and the unemployment rate is at a historic low, suggests that this will be slow to materialise in the region as a whole. Accordingly, we expect asset purchases to be tapered only gradually next year and doubt very much that interest rates will rise before 2019.