ECB: New leadership to leave negative rates behind – Nordea Markets

According to analysts at Nordea Markets, ECB remains on course to move away from the non-conventional monetary policy measures and rate hikes into positive territory can thus be seen as a logical continuation of the decision to end net asset purchases.

Key Quotes

“The ECB’s Executive Board will undergo important changes during this year. No less than half the board members will change during the course of the year, including the president, as Draghi’s term will end at the end of October. We conclude here that virtually all the names circulating as the next president of the ECB would represent a turn towards a less dovish direction.”

“In other words, we do not need to see a German president lead the ECB to see a change in the ECB’s reaction function towards a less dovish stance. We already know that many Governing Council members are worried about the potential negative side-effects of non-conventional monetary policy measures, especially if they continue for a long time. Now that the net asset purchases have ended, we think they will push for the removal of negative rates as a next step.”

“In conclusion, we continue to find a strong case for the ECB to bring rates back to positive territory, but the weaker growth outlook severely undermines the case for a series of rate hikes. As a result, we continue to expect the ECB to start raising rates by a 25bp step in December 2019, but now only see one further 25bp hike in 2020, down from three previously. Two 25bp hikes would be enough to bring also the deposit rate into positive territory.”

 

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility.