A dovish Draghi: underlying price pressures remain subdued - Danske

According to analysts from Danske Bank the European Central Bank will continue its QE program in 2018, taking into account that inflation on average will remain below 1.0%. 

Key Quotes: 

"The ECB kept all policy measures unchanged at today’s meeting, in line with expectations. The ECB still expects rates ‘to remain at present or lower levels for an extended period of time and well past the horizon of our net asset purchases’. Regarding QE purchases, it still intends to continue these ‘until the end of December 2017, or beyond, if necessary, and in any case until the Governing Council sees a sustained adjustment in the path of inflation consistent with its inflation aim’.”

“President Mario Draghi’s main focus during the press conference was that the underlying price pressures remain subdued. In the introductory statement, the ECB concluded that the marked rise in inflation in December reflected mainly a strong increase in energy inflation. Related to this, the ECB concluded that it ‘will continue to look through changes in HICP inflation if judged to be transient and to have no implication for the medium-term outlook for price stability’.”

“During the Q&A session, Draghi made it clear that higher inflation will not automatically result in QE tapering. Instead, four elements need to be fulfilled before the ECB will conclude that inflation is on a ‘sustained adjustment’. These include that the higher inflation (1) is affecting the medium term, (2) is durable, (3) is self-sustained and (4) is region wide. In our view, core inflation will stay below 1.0% on average this year, as wage pressure will stay subdued particularly in the periphery countries. Hence, we expect the ECB to continue its QE purchases in 2018.”