The ECB is to initiate the QE purchases on Monday 9 March.
The ECB will not buy bonds with yields below the deposit rate. This does NOT mean that the ECB is considering cutting the deposit rate further. If the ECB decided to lower the deposit rate further, it would be like the dog chasing its own tail and the deposit rate will not be cut because of 2-4Y German bonds going below -20bp.
The ECB raised its GDP growth projection strongly. In 2015, the ECB expects growth of 1.5% up from 1.0% in the December projection and in 2016 the new forecast is 1.9% up from 1.5%. Regarding the new 2017 projection, the ECB project GDP growth of 2.1%.
Note that the new projection includes the additional impact of the non-standard monetary policy measures, which are not normally captured by the standard modeling framework.
At the same time, the ECB somewhat surprisingly raised its HICP inflation forecast for 2016 to 1.5% from 1.3%. This should reflect that the ECB expects the QE programme to support inflation and related to that the ECB foresees inflation at 1.8% on average in 2017. In line with expectations, the forecast for 2015 was revised considerably lower to 0.0% from 0.7% due to the oil price decline.
Draghi said that the new staff projection is conditional on full implementation of all policy measures. Hence although the ECB expects stronger growth and inflation close to 2% in 2017, Draghi still expects the QE programme to continue at least until September 2016. Related to that Draghi stressed that long-term forecasts are uncertain.
Draghi was asked whether he could explain the phrase ‘a sustained adjustment in inflation', and responded that currently he sees absolutely no reason to discuss changes to the announced programme. We believe core inflation has to increase before the ECB will considered an early end to the purchases. In our view, this will take a long time although we look for higher headline inflation.
The ECB will not buy bonds with yields below the deposit rate. This does NOT mean that the ECB is considering cutting the deposit rate further. If the ECB decided to lower the deposit rate further, it would be like the dog chasing its own tail and the deposit rate will not be cut because of 2-4Y German bonds going below -20bp.
The ECB raised its GDP growth projection strongly. In 2015, the ECB expects growth of 1.5% up from 1.0% in the December projection and in 2016 the new forecast is 1.9% up from 1.5%. Regarding the new 2017 projection, the ECB project GDP growth of 2.1%.
Note that the new projection includes the additional impact of the non-standard monetary policy measures, which are not normally captured by the standard modeling framework.
At the same time, the ECB somewhat surprisingly raised its HICP inflation forecast for 2016 to 1.5% from 1.3%. This should reflect that the ECB expects the QE programme to support inflation and related to that the ECB foresees inflation at 1.8% on average in 2017. In line with expectations, the forecast for 2015 was revised considerably lower to 0.0% from 0.7% due to the oil price decline.
Draghi said that the new staff projection is conditional on full implementation of all policy measures. Hence although the ECB expects stronger growth and inflation close to 2% in 2017, Draghi still expects the QE programme to continue at least until September 2016. Related to that Draghi stressed that long-term forecasts are uncertain.
Draghi was asked whether he could explain the phrase ‘a sustained adjustment in inflation', and responded that currently he sees absolutely no reason to discuss changes to the announced programme. We believe core inflation has to increase before the ECB will considered an early end to the purchases. In our view, this will take a long time although we look for higher headline inflation.
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