ECB Preview: 13 Major Banks expectations from September meeting

Today, we have an all-important ECB meeting for the month of September, and as we get close to the decision timings, here are the expectations as forecasted by the economists and researchers of 13 major banks for today’s meet.

Most of the researchers and economists are forecasting that ECB is likely to roll out a “significant easing package” today. In addition, they are expecting the ECB to cut interest rates anywhere between 10bps to 20bps.

Rabobank

“We believe a rate cut is pretty much a given, but think that expectations of more than 10bp are excessive. Rather, we think the ECB will announce a set of complementary measures. That said, the Council seems to be most divided on asset purchases, and whether these should be announced as part of one big package or sequentially. To us, the main risk is therefore that asset purchases are postponed or watered down. However, considering the outlook, we believe that purchases will ultimately prove inevitable.”

“In terms of policy expectations we expect a 10bp deposit rate cut, with the other policy rates on hold. Despite some doubts in the Council, we believe that a tiered deposit rate is still the most likely mitigating measure to accompany this cut. Looking ahead, we expect three additional rate cuts of 10bp each, to -80bp by June 2020. We believe that the forward guidance will keep its easing bias that rates are expected “to remain at their present or lower levels [...]”.”

“Assuming that new asset purchases are announced, we expect the duration of the rates guidance to be made contingent on the duration of net asset purchases again. In terms of an Asset Purchase Program: we expect 12 months of asset purchases at EUR40bn/month; purchases may start as early as October, but could be delayed to January; and purchases will likely focus on government bonds and may include corporate bonds, but not bank bonds or equities.”

Westpac

“The July ECB meeting met expectations by indicating that the deposit rate is likely to be cut very soon and that other stimulus measures are on the table.”

“Concern over still low inflation and a new affirmation on the symmetry of their inflation target — suggest an even greater willingness to ease policy. In that context, the Governing council “have tasked the relevant Eurosystem Committees with examining options” ranging from reinforced forward guidance, a tiered reserves system and new asset purchases.”

“Since July, ECB member Rehn called for a "significant and impactful" package to address concerns over the outlook. Against that, the more hawkish members voiced their opinion that the economy is not weak enough to restart QE.”

“We expect a deposit rate cut at the September meeting and a commitment to restart asset purchases - in our view, sovereign bond purchases of €40bn per month.”

Nordea Markets

“The ECB is set to announce an easing package but given the contradictory comments from ECB members and the large number of variables, the meeting is bound to include surprises.”

“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.”

ANZ

“All eyes will be on the ECB tonight as departing President, Mario Draghi, fronts his penultimate meeting. The market is expecting a strong stimulatory package. Interest rates are expected to drop 10–20bp with market expectations weighted towards 10bp. QE worth EUR30–50bn a month for the next 9–12 months is expected, along with a tiered deposit rate and dovish forward guidance.”

National Bank of Canada

According to National Bank of Canada analysts, the European Central Bank (ECB) will cut the deposit rate by 20 basis points and they see a new round of asset purchases. 

“Given the precariousness of the situation, we expect the central bank to act forcefully when it comes to policy rates. A 20-basis point cut in the deposit rate sounds appropriate to us at this point. But expect many commentators to raise valid questions about whether the downside effects of lower rates are now outweighing their benefits.”

“We think Mario Draghi and other more dovish officials will win the day when it comes to QE. The ECB has already gone too far in signalling that a new round of asset purchases was on the way. Changing direction now would deal a blow to the Bank’s credibility and risk destabilizing markets. The size of the package is likely to be limited though; anything more than €40 billion a month looks improbable. Yet, to achieve that pace of bond buying for more than a few months, the ECB would still need to rewrite its own rules.”

Deutsche Bank

“Our economists expect the ECB to cut interest rates by 10bps at today’s policy meeting. They also anticipate a new system of reserve tiering, where some subset of reserves are exempted from the cost of negative interest rates, plus an enhanced version of forward guidance. While a shift to a symmetric inflation target or to a price level target would almost certainly be too radical for them to consider without a deeper policy review, they are likely to commit to some form of “lower for longer” rate guidance.”

“There are also risks that they cut by more than 10bps, given the apparent lack of pushback by hawkish members of the Governing Council against a rate cut. There was more public pushback over the last few weeks against asset purchases, so that may be harder to agree on.”

“Our economists nevertheless think a €30 billion per month purchase program is possible, though they could also see a more generous form of TLTROs if the ECB wants to focus on credit easing instead of measures that may flatten the curve.”

ING

“The European Central Bank (ECB) will start a final round of monetary easing on Thursday with a 20bp rate cut of the deposit rate, a small tiering system, a repricing of the Targeted Longer-Term Refinancing Operations (TLTROs) and a restart of Quantitive Easing (QE) with some €30 billion per month, according to analysts at ING.”

“Note that markets are fully priced for a 10 basis point deposit rate cut. For instance, the yield on the two-year German bond yield closed at -0.84% on Wednesday – down more than 40 basis points from the current deposit rate of -0.40%.”

Wells Fargo

“Our expectation is that the ECB will cut rates 10 bps and restart its QE program. Specifically, we expect the ECB to buy €45 billion a month in sovereign bonds for the next 12 months. Recent pushback against restarting QE from some ECB officials, however, makes the second portion of this forecast more uncertain than the first.”

Goldman Sachs

In the view of economists at the Wall Street banking giant, Goldman Sachs, the European Central Bank (ECB) is expected to roll out a “significant easing package” when its meets this Thursday to review its monetary policy.

“ECB to cut interest rates by 20 bps.”

“QE return, on corporate and sovereign debt.”

“Any further rate cuts will need to be accompanied by tiering in order to avoid further impacts on profits to the banking sector.”

BBVA

“We expect the ECB to cut 20bp the deposit rate to -0.60%, along with the implementation of a tiered system for the deposit facility and the announcement of a new round of QE – or an indication that QE could be easily triggered, in addition to strengthening forward guidance on rates (hikes conditional on inflation target). This package derives from worse-than-expected data in Germany, a somewhat weaker momentum for 2H19 and the intensification of downward risks (trade war escalation and Brexit).”

“The updated forecasts will likely revise GDP growth down by around 0.2pp in 2020-21 to 1.3% after 1.1% in 2019 and core inflation also down by around 0.1pp over the forecast horizon to average around 1.5% in 2021. Regarding market expectations, a 10 bps deposit rate cut is a virtual certainty in September, while bets of a 20 bps cut remain high (49%).”

ABN AMRO

“We do not think the hawks on the Governing Council will derail a stimulus package at the September meeting. The hawkish group on the council most likely numbers 5-6 members of the total of 25.”

“A majority of members is clearly in favour of stimulus and this was represented in the statement following the July meeting, which represents the central tendency of the Governing Council. Indeed, the main message in the press statement was that the ECB ‘stands ready to adjust all of its instruments, as appropriate, to ensure that inflation moves towards its aim in a sustained manner… we have tasked the relevant Eurosystem Committees with examining options, including ways to reinforce our forward guidance on policy rates, mitigating measures, such as the design of a tiered system for reserve remuneration, and options for the size and composition of potential new net asset purchases’. We continue to expect a large +package of monetary stimulus measures at the September meeting.”

TD Securities

“Today all eyes will be on the ECB decision, where another easing package is widely expected. Our base case sees a 20bps rate cut (mkts -10bps) with tiering, €40bn/month of QE (mkt ~€30bn), and no rate hikes until at least mid-2021. We're more comfortable with our rates view than QE, as even the hawks seemed to be open to cutting rates further, while the QE decision is likely going to be much more contentious.”

“Looking at the risks around our base case, we see a much higher probability of seeing a more hawkish outcome than a guns-blazing dovish package. While we attribute about a 40% probability to our base case, we see fairly high 30% odds of an outcome roughly in line with consensus, and an uncomfortably high 20% chance that the ECB disappoints with no QE announced at all, and a message that Draghi has been steamrolled by the hawks.”

“We hope though that the deteriorating staff GDP and HICP forecasts will be enough to convince the hawks that more QE is needed, allowing Draghi to cement his status as the President who did "whatever it takes" to save the Eurozone.”

Danske Bank

“Today's main event is without doubt the long-awaited ECB meeting. We expect a more dovish package than other analysts. We expect (1) a 20bp rate cut in the deposit rate and the extended forward guidance 'at present or lower...well past the horizon of net asset purchases ' to remain, (2) a 12M QE restart of EUR45-60bn per month, although we acknowledge there are downside risks given recent communications and (3) the introduction of a tiering system.”