ECB Preview: 11 Major Banks expectations from July meeting

Today, we have an all-important ECB meeting for the month of July, and as we get close to the decision timings, here are the expectations as forecasted by the economists and researchers of 11 major banks for today’s meet.

Most of the researchers and economists are forecasting that ECB is likely to keep interest rates on hold. In addition, they are expecting a change of forward guidance from the central bank, which is likely to confirm that the stimulus is on the way.

ABN AMRO

“At the July Governing Council meeting, we expect the ECB to signal that a monetary easing package is becoming an increasingly likely prospect. It will very likely change its forward guidance on interest rates from the current expectation that ‘the key ECB interest rates (will) remain at their present levels at least through…’ to ‘the key ECB interest rates (will) remain at their present levels or lower at least through…’.  This would signal that a cut in policy rates is likely at the next Governing Council meeting in September.”

“There is also the possibility that the Council will signal the increasing likelihood of a re-start of QE by adding a line to its forward guidance on its asset purchase programme. For instance, it could say that the ECB would ‘re-start net asset purchases if necessary to ensure sustained convergence of inflation to levels that are below, but close to, 2% over the medium term’. The current guidance refers only to re-investments.”

“There is a possibility of a cut in policy rates already at this week’s meeting.”

Danske Bank

“We expect the ECB to tweak forward guidance at the July meeting, setting the scene for a comprehensive easing package to be unveiled in September (depo rate cut, tiering, QE restart and forward guidance). We could already see the ECB tasking committees to examine the easing package including tiering (again).”

“Economic data has remained lacklustre, and hence in a first step we expect the Governing Council (GC) to adjust the forward guidance at the 25 July meeting to include a reference to further easing similar to the wording "at present or lower levels" that was used up until June 2017. This should 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.”

“While a preference for further stimulus has been well signalled by various ECB members in recent weeks, for example Coeuré and Rehn , much debate continues to centre on the timing and design of the exact policy measures. We cannot rule out measures coming already at the July meeting, but overall find it premature.”

TD Securities

“We look for the ECB to kick off another easing cycle at this week's meeting, in words for now but setting up for deeds in September. The ECB has been edging in that direction through 2019, extending its forward guidance in March and again in June. We think that it will have to throw in the towel on calendar-based guidance altogether at this meeting, as focus turns to rate cuts rather than rate hikes.”

“With no obvious improvement in the macro outlook, we know that further stimulus is coming, it's just a question of what kind and how much. We think that the ECB will spend the summer considering that question, and wait until September and more up-to-date macro forecasts before making any firm decisions. So the July meeting may not see that much market reaction in the end if things play out as we expect, but the potential for surprise is much higher than before as the ECB cracks open the toolkit that it thought it had closed when it finished QE at the end of 2018.”

BBVA

According to the Research Department at BBVA, the central bank will strengthen its forward guidance on rates opening the door to rate cuts, retaining its dovish which was reinforced at Sintra meeting.

“The cautious tone could be reinforced on the back of lingering risks due to global concerns on the persistence of trade war tensions, amid the Eurozone slowdown and the low inflation expectations.”

“Particularly, the ECB will maintain that risks for growth remain tilted to the downside.”

“We expect as soon as this week meeting the ECB to strengthen its forward guidance on rates opening the door to rate cuts and expressing their forward guidance on rates conditional on inflation expectations (rather than time-dependent).”

“On depo rate cuts we expect them to occur in October (-10bps) but it is not ruled out that it could happen at the September meeting if necessary; always together with a tiered system for deposits.”

CIBC

“While we’re in line with consensus in expecting an announcement at Draghi’s penultimate meeting on September 12th, our projected 10 bp cut in the repo rate (to -0.5%) would be smaller than some in market are now looking for, a plus for the euro. Moreover, we expect the central bank to eschew a resumption of asset purchases, in part in fear that a QE restart will be used as a “trump” card by the White House in its claims that Europe is deliberately aiming to weaken its currency.”

ING

“The ECB is likely to change the forward guidance and signal the upcoming cuts (in September and potentially beyond), thus cementing the markets' dovish expectations, and President Draghi is likely to deliver a dovish press conference, with a potential hint at QE.”

Wells Fargo

Analysts at Wells Fargo, expect no change in rates and look for an adjustment to its forward guidance to hint at a near-term rate cut. 

“It is widely expected to keep interest rates on hold. That is our expectation as well, although we look for the ECB to adjust its forward guidance to hint at a near-term rate cut (we expect it will cut its deposit and refinancing rates 10 bps to -0.50% and -0.10%, respectively, in September).”

“At this time, we do not expect the central bank to restart its asset purchase program, although we acknowledge the risks have risen in recent weeks as the Eurozone economy continues to underwhelm.”

“We see a moderate risk that the ECB will catch markets off guard and cut interest rates immediately, rather than waiting to see how the economy evolves between now and September. The ECB has made similarly surprising policy announcements in recent years, and a rate cut (...) would carry strong messaging on the ECB’s commitment to its mandate.”

Nordea Markets

“Draghi will likely do “whatever it takes” to pave the way as much as possible, for instance in deciding on a new tiering system.”

“A change in forward guidance is to be expected in July, with additional easing – QE and cuts - announced in September. The market is pricing in roughly a coin-toss of a depo rate cut already in July, meaning that EUR could see some short-term support in the coming week.”

Rabobank

Rabobank analysts believe that the ECB’s Governing Council will use the July meeting to steer towards a rate cut in September.

“We expect forward guidance to be updated to signal a rate cut, e.g. “The Governing Council now expects the key ECB interest rates to remain at their present or lower levels [...]. We think that this would herald a 10bp rate cut in September.”

“We don’t expect changes to the reinvestment program or its forward guidance, nor do we anticipate the ECB to restart net asset purchases at this stage.”

RBC Capital Markets

Easier monetary policy is now the base case for the European Central Bank according to analysts at RBC Capital Markets- They think the central bank will lower its deposit rate further into negative territory over the second half of this year.

“A subdued growth outlook, along with persistently low inflation and declining inflation expectations, has the ECB contemplating further easing. In particular, President Draghi noted that more stimulus should be expected unless economic conditions improve (he previously said conditions would need to deteriorate to warrant further action).”

“We now expect the ECB will lower its deposit rate from -0.4% to -0.6% over the second half of this year via 10 basis point rate cuts in September and December. It is also likely to signal that further QE is on the table, though we don’t think asset purchases will restart in the near-term.”

Westpac

“The July meeting is likely to open the door to a cut in the deposit rate at the September meeting. The ECB are also likely to reiterate that they are willing and able to restart the asset purchase program and move to a tiered deposit rate.”

“At this stage, we believe the cut and merely showing the market that the ECB can ease further will be sufficient stimulus. However, if manufacturing weakness persists - or worse, spreads - the ECB will need to deliver.”