ECB meeting bound to include surprises – Nordea

Jan von Gerich, analyst at Nordea Markets, suggest that the ECB is set to announce an easing package today but given the contradictory comments from ECB members and the large number of variables, the meeting is bound to include surprises.

Key Quotes

“At the July meeting, Draghi sent clear signals that an easing package would be launched at the meeting on 12 September. This message was reinforced further by the meeting account, which confirmed the merits of the package approach.”

“We expect the ECB to reveal an easing package consisting of several steps next week:

• 10bp cut in the deposit rate
  • to be accompanied by moving to a tiered reserve system, which implies more room to cut rates going forward
• Restarting net asset purchases at a pace of EUR 30bn per month (with the purchases starting in October)
  • consisting of public-sector, corporate and covered bonds
  • to be accompanied by raising the issuer limit for public-sector issuers from 33% to 49%
• Strengthening forward guidance by linking it more concretely to the inflation outlook.”

“In our view, the economic uncertainties have continued to increase since the June meeting and the economic and inflation outlook is more negative compared to the ECB’s staff forecasts. We think that the ECB will be forced to revise its growth and inflation forecasts downwards, which will strengthen the case for further easing at the September meeting.”