ECB Preview: Forecasts from nine major banks, a dovish message of ongoing support

The European Central Bank (ECB) will announce its policy decisions at 11:45 GMT and as we get closer to the release time, here are the expectations as forecast by the economists and researchers of nine major banks, regarding the upcoming announcement.

The central bank is widely anticipated to keep policy rates unchanged but also to take its first step towards easing the massive financial support program meant to keep the system stable throughout the pandemic. 

Danske Bank

“We expect the ECB to flag risks to the outlook and as such not deviate from the current baseline and send new policy signals already now but wait for a new projections round in December. That means that we still expect the ECB to repeat that they believe that the current inflation outlook is largely transitory but that narrative will be tested until the December meeting. We believe that the ECB will attempt to make the meeting as uneventful as possible.”

Rabobank

“The ECB may reiterate the growing divergence with other central banks. October’s meeting will reflect the increased uncertainty surrounding inflation. This shouldn’t derail the ECB’s plans of a post-PEPP ‘transition period.’ We fully expect ECB policy to remain on hold until December.”

TDS

“This was meant to be a placeholder meeting, but market re-pricing has put the ECB on the back foot. President Lagarde will likely try to push back against recent market moves. An emphasis on policy sequencing dynamics reinforce that the ECB is slated to be a laggard in the central bank tightening circuit. EUR/USD has several negatives going for it, and we could see it revert sub-1.16 in the weeks ahead if Lagarde can succeed in converting a push into a shove. We also like EUR/JPY downside to 131.”

ING

“Updating the ECB’s own technical assumptions from mid-August with the new market reality would mechanically lead to another increase in the inflation projections for 2022 and 2023, by 0.1% to 0.2%, even if the increase in bond yield by some 30 basis points should have a dampening effect. We expect a discussion on the following topics: extending the Pandemic Emergency Purchase Programme (PEPP) beyond March 2022; how to avoid a cliff-edge effect and how much (if any) QE is needed in the post-pandemic era to bring inflation sustainably back to 2%? In our view, the easiest solution would be to gradually phase out the PEPP purchases starting January next year, potentially with a new third asset purchase programme to maintain the PEPP’s flexibility, allowing the ECB to continue buying Greek bonds. As much course-setting this week’s ECB meeting will be, we doubt that ECB president Christine Lagarde will share any important details of it. She will need all her energy to moderate what in our view looks like a widening rift between hawks and doves; of those ECB members favoring an exit from the emergency tools and those still being more afraid of medium-term inflation being too low rather than too high. Pushing the debate publicly in a certain direction would widen the rift rather than closing it. This is why, at Thursday’s press conference, less (communication) should be more.”

Westpac

“They will clearly articulate they have confidence in the recovery, but will also note they see little need to raise rates to end-2023 given inflation. The medium-term rates outlook for the ECB is at odds with both the US FOMC and UK’s BoE.”

SocGen

“The ECB message should remain firmly on the dovish side, with the bank expecting high inflation to be only transitory. We expect the ECB will decide in December to end the PEPP in March next year, to raise the APP to EUR50 B per month as of April and to launch another TLTRO. It’s a very data-heavy week, and the figures should point to ‘growth-flation’ – a combination of solid growth and high inflation.” 

Deutsche Bank

“This Governing Council meeting is likely to be a staging ground ahead of wide-ranging policy decisions in December, and will therefore be about tone and expectations management. One thing to keep an eye on in particular will be what is said about the recent surge in natural gas prices, as well as if ECB President Lagarde challenges the market pricing on liftoff as inconsistent with their inflation forecasts and new rates guidance. 5yr5yr Euro inflation swaps hit 2% for the first time on Friday so if the market is to be believed the ECB has achieved long-term success in hitting its mandate. With regards to the meeting, we think there’ll be more action in December where our baseline is that there’ll be confirmation that PEPP purchases will end in March 2022.”

Nordea

“Financial markets have started to price in clear risks of rate hikes starting already next year also in the euro area. Previous ECB comments have failed to change market pricing much, and we expect Lagarde to try to emphasize the ECB’s dovish guidance on rates. Rapidly rising inflation expectations may already worry the more hawkish Governing Council members. Short-end pricing may correct somewhat lower on Thursday, but in the bigger picture, global inflation worries still have room to escalate.

ABN Amro

“The big question of course is whether the ECB will succeed in pouring cold water on market expectations for early policy rate hikes. This might prove very challenging at the November meeting as ECB President Lagarde will have little other than words to try and shift expectations.”