ECB Preview: 5 Major Banks expectations from December meet

Today we have an all-important ECB meeting and as we get close to the decision timings, here are the expectations as forecasted by the economists and researchers of 5 major banks for the upcoming meet.

After ECB announced an extension of QE programme at a rate of €30bn per month in October, most analysts and economists doubt that the ECB will unveil any further policy changes and is likely to keep the statement unchanged from Oct. However, modest upward revisions to the GDP growth projections for 2017 and 2018 cannot be ruled out.

TDS

We look for the ECB to keep the statement unchanged from Oct. Since the new, lower pace of QE hasn’t even begun yet, the ECB will want to at least see how that goes before considering language changes. The focus for the intro statement will likely be on the new forecasts. We look for a tempered upgrade to GDP growth, for a below-target 2020 HICP forecast, and for no more reference to an uptick in core CPI. In the press conference, we look for Draghi to steer the conversation toward the continuous improvement in the growth outlook, and the ECB’s confidence that underlying inflation will rise as excess slack continues to diminish. We look for questions on the composition of QE and recent moves in EONIA.

Danske bank

• Following the decision to extend the QE programme for another nine months in 2018, we do not expect the ECB to make any changes to its policy stance at its upcoming meeting. Instead, we think policymakers will put off any substantial discussion about the next move or changes to the forward guidance until well into 2018. Activity indicators have remained strong and we expect the ECB to revise its growth and inflation forecasts upward in light of the ongoing strong economic momentum. Consensus seems to be growing in the Governing Council that the October QE extension was the last one, as the ECB is increasingly shifting towards a more holistic view of the economy and inflation. Based on this, we think it is important to watch developments in ‘super core’ inflation.
• Other topics that could come up during the Q&A include the recent volatility in the Eonia fixing and the repo market over year end. We think it is likely that the corporate bond and covered bond purchase programmes’ share of QE will be increased from January 2018. In our view, it is too early for the ECB to spur the next ‘wave of normalisation’ pricing just yet, so we project EUR/USD within a 1.17-1.20 range near term. We expect the trend for tighter spreads and flatter curves in the euro fixed income market to continue.

Nomura

• Having announced at its last meeting that it would continue its asset purchase programme at a rate of €30bn per month from January until September 2018, we doubt the ECB will unveil any further policy changes at its meeting on 14 December. The key macro focus at this meeting should instead be the update of the ECB’s staff forecasts. We expect modest upward revisions to the GDP growth projections for 2017 and 2018. And notwithstanding some underwhelming inflation data for November, we expect a modest upward revision to the headline inflation projection for 2018 as well thanks to higher-than-expected oil prices.
• We still expect growth and inflation outcomes to surprise the ECB on the upside in the immediate months ahead. Accordingly, we remain confident that the ECB will slowly rethink its monetary policy stance in the opening months of next year, paving the way for a cessation of the APP from September 2018 and a modest 10bp increase in the deposit facility rate in December 2018.

ING

• This week’s ECB meeting, as well as the subsequent press conference, should be short. The ECB has said and done everything it wanted to do this year: gradually introducing a dovish tapering. Therefore, Thursday's meeting, in our view will probably bring lots of looking back and self-congratulation. But don’t be overwhelmed by the Christmas harmony, 2018 is likely to bring new ECB in-house tensions.”
• Thursday's meeting, in our view, will bring lots of self-congratulation by ECB president Mario Draghi, emphasising the strong growth story. At the same time, we expect Draghi to reconfirm the main messages from the October meeting - that policy rates will remain at current levels “well past” the horizon of the net asset purchases, that QE could continue beyond September 2018 if a “sustained adjustment in the path of inflation consistent with its inflation aim” is not achieved, and that the ECB could still do more QE if the macro outlook “becomes less favourable” or financial conditions “become inconsistent with further progress towards a sustained adjustment in the path of inflation”.
• The most interesting bit of the ECB meeting will probably be the presentation of the latest ECB staff projections. With some upward revision for Eurozone growth for this year and next, the ECB should join the growing choir of Eurozone optimists. Even more important for the future path of monetary policy, however, will be the ECB’s inflation forecasts for 2019 and 2020.”
• The long-term inflation projections will be important in a possibly upcoming policy debate in 2018. With higher oil prices, chances that headline inflation could push through the 2% level next year have increased. This has provided ammunition for ECB hawks to push for a definite end to QE earlier rather than later than September 2018. It could also be the trigger to restart the currently hushed debate on sequencing and forward guidance.

BBH

The ECB staff will update the macroeconomic forecasts.  There are three things to watch.   First, the staff will introduce the 2020 forecasts for the first time and hence will offer new information.  Second, the CPI 2020 forecast will be particularly important. Will it forecast that the inflation target of near but lower than 2% be achieved?  The 2019 forecast in September was 1.5%. Third, the data since the September forecasts suggest the staff may be tempted to revise higher their growth forecasts.  This year's was estimated at 2.2%, and it now looks closer to 2.5%.  Next year's growth was expected to be 1.8% and 1.7% in 2019.   

Click here to read special preview of the ECB Interest Rate Decision from our European Chief Analyst - Mario Blascak  titled “ECB Preview: Draghicomedy of words”