ECB: Central bank will strengthen its forward guidance, opening door to rate cuts - BBVA
|On Thursday, the European Central Bank (ECB) will have its monetary policiy meeting. According to the Research Department at BBVA, the central bank will strengthen its forward guidance on rates opening the door to rate cuts,
retaining its dovish which was reinforced at Sintra meeting.
Key Quotes:
“The cautious tone could be reinforced on the back of lingering risks due to global concerns on the persistence of trade war tensions, amid the Eurozone slowdown and the low inflation expectations. Along the same lines, the minutes of the June meeting confirmed that there was a broad agreement on the list of measures that Mr. Draghi presented at Sintra (reinforce the forward guidance, cut interest rate along with the tiered deposit, and resume the QE). Particularly, the ECB will maintain that risks for growth remain tilted to the downside.”
“We expect as soon as this week meeting the ECB to strengthen its forward guidance on rates opening the door to rate cuts and expressing their forward guidance on rates conditional on inflation expectations (rather than time-dependent). On depo rate cuts we expect them to occur in October (-10bps) but it is not ruled out that it could happen at the September meeting if necessary; always together with a tiered system for deposits.”
“Resuming the QE is not in our baseline scenario, it can be used as a second line of defense.”
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