ECB Preview: 13 major banks expectations for today's meeting

Today, the European Central Bank (ECB) is set to announce its Interest and Deposit Rate Decision at 11:45 GMT. The market consensus is for the ECB to stay on hold and as we get closer to the release time, here are the expectations forecast by the economists and researchers of 13 major banks, regarding the upcoming ECB meeting. What’s more, the ECB is expected to leave its policy unchanged after adding €600 billion to its bond-buying scheme in June.

Nordea

“Next ECB meeting will not deliver another easing package like the one we saw in June. There is no need for one at the moment. While we do not expect large market moves in response to the ECB’s message this time, if we need to take a stance, we would point to a risk that Lagarde will sound overly-optimistic in the press conference, and hint that the pace of bond purchases could be slower in the future, which could lead to somewhat higher bond yields, a steeper curve and a stronger EUR. We do not see the ECB cutting rates further, which offers chances to position for somewhat higher rates at the very short end of the curve.”

TDS

“The July meeting should be fairly uneventful, as the ECB has essentially set monetary policy for the better part of the next year. The tone should be a bit more upbeat on the macro side, as there appears to be a floor now under the 2020 GDP forecasts, but Lagarde will want to avoid signaling in any way that policy could begin to tighten prematurely.” 

Rabobank

“The ECB will likely remain on hold as they assess the economic developments, the impact of their own stimulus and the outcome of the European meetings on the Recovery Fund. Recent hawkish comments that the PEPP envelope may not be fully used are premature. We believe that PEPP is the main instrument if further easing is required and we continue to see risks tilted towards more, not less, purchases. The strong increase in excess liquidity perhaps warrants a higher tiering multiplier. This could be announced next week, but so far there are few signs that the Council sees this as a very pressing matter.”

ING

“There is the ongoing question on whether to once again increase the size of the PEPP or maybe even to end the programme earlier than expected. The ECB has always emphasized the flexibility of the programme and the fact the eurozone bond yields are back at pre-crisis levels as well as some slowing of the pace of the ECB purchases has given rise to speculation in markets about a possible earlier end. In our view, this speculation is premature. The economic outlook for the eurozone is simply too uncertain. Also, the negotiations (and eventual decision) on the European Recovery Fund will also have an impact on bond yields. An agreement next week should stabilize bond yields. Disagreement and postponement could add new pressure on peripheral yields. All in all, the next important stop for the ECB will be the September and October meetings. This is when there will be clear information and evidence on the shape of the recovery going into the second half of the year. This meeting will rather be a test for ECB President Christine Lagarde’s communication skills.” 

Danske Bank

“We do not expect the ECB to scale up PEPP again if no further financial fragmentation appears and would expect financial conditions to continue to decline gradually. Therefore, we expect the ECB to slow down its daily PEPP implementation quite markedly. We do not rule out a discussion about adjusting the tiering multiplier taking place, although our baseline remains that any decision to increase the tiering multiplier would occur at a later stage.”

ABN Amro

“We think the ECB will strike a more positive note on current economic developments, while continuing to express caution about the outlook further out. As far as policy changes go, we do not expect major changes at this meeting so soon after June’s significant step up in asset purchases. However, the ECB may well decide to increase the multiplier for the calculation of the allowance of excess reserves that banks can hold free of charge. An increase in the tiering system ratio could reduce the burden of direct costs to banks from negative interest rates. In October 2019, the ECB introduced an initial tiering multiplier, which was set at six. Now, we judge that the ECB is likely to gradually increase it, with a first step to seven. An increase in the tiering ratio by 1 would lead roughly to a EUR 700 million cost reduction for eurozone banks.”

Deutsche Bank

“Our European economists expect the policy statement to remain unchanged, following the decision at the last meeting to expand the envelope for their Pandemic Emergency Purchase Programme by a further €600 billion, bringing the total up to €1.35 trillion. Though recent comments from ECB officials have shown signs of an emerging optimism, our economists don’t believe these signal a change in the policy stance, and expect the commitment to ‘substantial monetary policy stimulus’ to be repeated. Other issues to look out for include any comments from President Lagarde on the German Constitutional Court, now that the German Bundestag has passed a motion on proportionality.”

UOB

“Whilst we are not excluding the possibility of further monetary stimulus down the road, the latest measures announced by the ECB should dent any talks or concerns (for now) about whether or not the ECB is willing to play its role of lender of last resort for the Eurozone.”

Swedbank

“We expect the ECB Governing Council this Thursday to keep its policy unchanged but reiterate that all policy instruments introduced during the recent months will continue to be used to fight the consequences of the pandemic. Some Governing Council members have voiced their opinion that some of the firepower of the Pandemic Emergency Purchase Programme, which was expanded to EUR 1,35 billion last month, may be unused. That may be the case, if the second wave of the virus is avoided and the economy recovers quicker than currently expected, but Christine Lagarde will probably continue to assure that the ECB is ready to do everything and anything.”

Saxo Bank

“We are onside with consensus in expecting no change in monetary policy this week. Now the German court challenge has been defused, the ECB can focus on the future of its bond purchases. Technical discussions should concern the likely slowdown in the path of bond purchases this summer, further flexibility in the PSPP (Public Sector Purchase Programme) parameters, and early talks about the Strategy Review that is due next year, especially regarding climate change. The ECB is likely to remain on alert as the second economic wave of the COVID-19, characterized by business restructuring and permanent closures, is about to hit the Eurozone and fragilize the banking sector.”

Citibank

“The foreseeable bounce in activity as European economies re-open is likely to see the ECB adopt a wait-and-see attitude for now. However, Citi analysts still expect the ECB will need to dynamically adjust its asset purchases more or less in line with the increase in public deficits later in 2020.”

OCBC

“With monetary stimulus already frontloaded, we do not expect further increases in the asset purchase programme this round, although we do not rule out increases in the subsequent meetings.” 

Credit Suisse

“The ECB meeting is likely to be a relative non-event, given that the ECB has made it clear that it is content with its policy mix for the time being. The focus therefore will likely be on comments relating to the growth and inflation outlook. EUR-negative would be comments that suggest that disinflation risk is worsening and/or that the growth outlook is likely to deteriorate. EUR-positive would be a message that suggests the inflation and growth outlooks are improving rapidly, albeit from a difficult starting point. The central scenario (which we expect) would be a message that suggests that the inflation and growth outlook remain difficult, but that risks are no longer materially worsening. A true surprise would be a message suggesting that still further measures are planned (for example a PEPP increase to be announced in the Autumn or a new round of TLTRO on the EUR-positive side, or an indication that political pressures may require an early end to these programs on the EUR-negative side).”