ECB: A predictable meeting, next re-calibration in December

As expected, the European Central Bank (ECB) kept its key interest rates unchanged and announced a slow down in the pandemic purchase program from the fourth quarter. According to analysts from Danske Bank, the current rise in inflation is still seen as largely temporary by the ECB. They largely share with the central bank the cautiously optimistic outlook for the economy and transitory inflation narrative underlying price pressures building up only slowly.

Key Quotes:

“At today’s meeting, ECB decided to slow its PEPP bond purchases to a ‘moderately lower pace of net asset purchases under the pandemic emergency purchase programme (PEPP) than in the previous two quarters.’ This slowdown was widely expected and probably as close to the market consensus as there could be. The entire press conference unfolded in a quite predictable fashion.”

“The ECB gave further guidance of the next re-calibration to take place at the December meeting, which was widely as expected. The ‘calibrate, not taper’ narrative gave us deja-vu of the December 2016 press conference. Further TLTRO operations will be discussed alongside the general stance at the December meeting, but will be data dependent.”

“Overall, we largely share the ECB’s cautiously optimistic outlook for the economy and transitory inflation narrative. That said, with inflation expected to print above the ECB's target for the remainder of this year, we would not be surprised to see hawks in the ECB's Governing Council to become more vocal about pro-inflationary risks in the coming months. Fiscal rather than monetary policy will increasingly determine how the euro area recovery continues in 2022 and in that respect the outcome of Germany’s upcoming parliamentary election will play a crucial role in our view.”

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