ECB: It is a matter of how, no longer if - Danske Bank

At today meeting, the European Central Bank (ECB) kept the key interest rates unchanged and mentioned it will examine the potential of a new purchase program, rate tiering and forward guidance.  According to analysts from Danske Bank, markets will keep speculating about the composition of the stimulus but were somewhat disappointed with the lack of details.

Key Quotes: 

“At the July meeting Mario Draghi sent a strong signal to the market, that further stimulus is on its way to help the ailing economy. As we expected, the ECB adjusted the forward guidance as a first step, opening up the possibility of policy rates remaining ‘at present or lower levels’ at least through H1 20. In our view this has 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.”

“Markets are currently pricing 12bp of cut in September. However, while Draghi more or less pledged that a highly accommodative monetary is going to be needed for a prolonged period of time, he remained deliberately vague on the what/when/how of the exact policy measures, which tasked committees have been charged with examining until September. Tasked committees have previously been used with bigger changes in monetary policy measures.”

“All this reinforced the message of a more uncertain inflation and growth outlook, that will be the base of the easing package to be unveiled in September.”