ECB: Not even a tiny step - Commerzbank

Analysts at Commerzbank explain that contrary to what they too had expected, the ECB has not taken any step towards normalising its monetary policy at its latest meeting as it left its forward guidance unchanged and there were cosmetic changes at most to President Draghi’s statement.

Key Quotes

“We see in this the ECB’s desire to keep as much flexibility as possible for as long as possible. We still expect it to announce a reduction of its bond purchases for the beginning of 2018 at the next meeting in September.”

“Not only we had expected the ECB to slowly prepare the markets for a tapering of its bond purchases at today’s meeting. But this was not the case. The central bank once again stressed its readiness to not only prolong but also expand its bond buying if need be. According to Draghi, there was unanimous agreement on this. The same applies to the decision not to announce a date for reviewing the further course of action regarding QE. The staff was not even asked to look at the options here. And the statement read out by Draghi essentially matched what was said six weeks ago. The only halfway relevant change was the comment that the recovery is not only strengthening but also broadening.” 

“In the discussion that followed, Draghi pointed out that – contrary to the market view – there had been no differences between his comments after the last governing council meeting and what he said at the conference in Sintra. The economy was doing well but the development of consumer prices, and thus also of wages, was decisive, and the weakness here had not changed at all. On the other hand, Draghi seemed little impressed by the stronger euro and higher yields. He described financing conditions as still good.”

“Consequently, the ECB has not even taken a small step towards a somewhat less expansionary monetary policy. It clearly wants to keep its flexibility for as long as possible despite the improved growth outlook. Even so, we still expect an announcement in September to reduce bond purchases from the beginning of 2018. The press conference has shown once again that this decision will be based less on a positive development for the ECB but will be forced solely when the ECB otherwise sees itself in danger of breaching the 33% limit that it had set itself.”