ECB didn't deliver new policy signals - Danske Bank

At today’s meeting, the European Central Bank, left as expected interest rate unchanged. According to analysts from Danske Bank, the ECB did not deliver new policy signals and it highlighted risks ‘gaining more prominence’ and the confidence in its inflation outlook prevailed.

Key Quotes: 

“The most interesting today was the update of the staff projections and the inflation assessment: not to forget the increased prominence of the wage dynamics in the introductory statement (IS) and the press conference (‘wage’ was mentioned three times in the IS).”

“The reinvestment strategy was not discussed today, not even when to discuss it, although he later clarified it would be in October or December this year. In June Draghi said that they would revisit this in the coming meetings. We favour a decision at the December meeting. It was mentioned that the capital key is the guiding principle.”

“ECB lowered the growth forecasts for 2018 to 2.0% - in line with our view - from 2.1% and for 2019 to 1.8% from 1.9%, while leaving the projections for 2020 unchanged at 1.7%. Risks to the growth outlook were still judged to be broadly balanced but uncertainties related to rising protectionism, vulnerabilities in emerging markets and financial market volatility have gained more prominence.”

“The ECB expects headline inflation to hover around current levels for the remainder of the year, while core inflation is expected to pick-up toward end-2018. Draghi stressed that underlying inflation pressures remain subdued, but at the same time rising wages (2.3% y/y in Q2 18) means that uncertainties around the inflation outlook are receding. Core inflation was slightly revised down reflecting the weaker growth outlook. But upward revisions to the energy component resulted in an unchanged headline forecast profile. The ECB still projects core inflation to accelerate significantly to 1.8% in 2020, supported by an expected strong pick-up in wage growth to 2.7%. We see core inflation only at 1.5% in 2020, as the pass-through from higher wages will happen more gradually in our view.”