Danske Research Team
Danske Bank A/S
We do not expect any new announcements from the ECB at the meeting next week. President Mario Draghi will, in our view, balance his tone, reflecting the economic resilience to political uncertainty on the one hand but on the other hand, sound dovish, as the ECB is concerned about the subdued underlying price pressure and weakness in the banking sector.
We expect Draghi’s main message to be that the ECB’s focus is on full QE implementation. Draghi has remained on the sidelines in the recent tapering debate, which started after ECB officials allegedly said that the ECB is considering QE tapering options once the programme ends. In our view, it is too early to discuss tapering but following last week’s unconfirmed reports, it will remain a topic going forward.
At the following ECB meeting in December, we expect the ECB to announce an extension of the QE purchases by six months without pre-announcing tapering. The QE extension should follow although inflation is set to rise in coming months but reflect the lack of upward trend on core inflation. In our view, there is a risk the ECB will extend QE again later due to low core inflation.
We do not expect the ECB to adjust its self-imposed QE restrictions ahead of a potential extension of the purchases in December. In our view, the ECB could continue to deviate from the capital key without introducing new buying distribution. Currently, we do not consider it very likely that the ECB allows large-scale buying below the deposit rate.
Too early to discuss tapering – QE could continue for much longer
Not yet time for pre-announced QE tapering: Too early to discuss tapering – QE could continue for much longer At next week’s ECB meeting, the main topic is likely to be QE tapering after unconfirmed reports of ECB officials indicating that the ECB is considering QE tapering options once the programme ends. See Bloomberg. In our view, the ECB will not pre-announce QE tapering at the meeting. Instead, we expect the programme’s end date to remain dependent on the inflation outlook, and we believe the ECB will extend the QE purchases by six months at the meeting in December. We see some risk that the ECB will scale down its purchases to EUR60bn per month as was the case until April 2016, but our base case is that the current pace of EUR80bn per month will be maintained.
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