ECB Preview: A new chapter of dovish tightening

  • The new reinvestment strategy could be the most interesting part of next week's ECB meeting, when a formal announcement about the end of the net asset purchases is set to be made.

  • Although the stakes are high at the meeting, we expect Draghi to try to be as ‘dull' as possible in order not to move the markets. 

  • Growth assessment as well as new forecasts (including 2021) will be closely monitored. We will pay close attention to the wage growth assessment.

  • Given the current dovish market pricing we have a hard time seeing how the ECB can deliver a message that would lead to a dovish market reaction.

In conclusion:

We expect Draghi to repeat his ‘glass half full' message, thereby acknowledging that economic developments are broadly on track. Therefore, despite a (on paper) hawkish policy move of ending the net asset purchases, we expect a dovish tightening as a confirmation and reassurance of an accommodative monetary policy stance going forward. We expect no new guidance on a first rate hike.

We also expect Draghi to voice concerns about the growth outlook but to still keep the broadly balanced risk assessment, which in our view is needed to end the asset purchase programme (APP). We expect a cautiously optimistic tone from Draghi on the (core) inflation, but a relative upbeat and confident wording on the wage growth developments.

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