• It is a matter of when and how rather than if ECB will ease monetary policy. After Draghi's dovish Sintra speech, lack of improvement in growth and inflation, and comments from ECB GC members, the case for further easing has strengthened.

  • We expect the ECB to tweak forward guidance at the July meeting, setting the scene for a comprehensive easing package to be unveiled in September (depo rate cut, tiering, QE restart and forward guidance). We could already see the ECB tasking committees to examine the easing package including tiering (again).

  • FI Markets may be disappointed at the July meeting for lacking details on new stimuli. However, we would expect any FI sell-off to be short-lived as focus turns to the expected easing at the September meeting. For FX, we expect the September meeting to be more pivotal than the July meeting.

As leadership change at the helm of the ECB gets underway, both Mario Draghi's Sintra speech and the June minutes all but confirmed that Draghi's term will culminate in another big easing package. Economic data has remained lacklustre (see more below), and hence in a first step we expect the Governing Council (GC) to adjust the forward guidance at the 25 July meeting to include a reference to further easing similar to the wording "at present or lower levels" that was used up until June 2017. This should set the scene for a deposit rate cut, which we expect to be announced at the September meeting (we expect a 20bp rate cut), paired with a restart of the QE programme and extended forward guidance (see ECB Research - New ECB call - rate cut and restart of QE).

While a preference for further stimulus has been well signalled by various ECB members in recent weeks, for example Coeuré and Rehn, much debate continues to centre on the timing and design of the exact policy measures. We cannot rule out measures coming already at the July meeting, but overall find it premature (an ECB sources story, that suggested that GC members were in no rush for a July decision, supports our view).

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