ECB Preview: The long path to unwinding easy policy – Nomura

Analysts at Nomura do not think there is an urgent need to change ECB’s guidance at next week’s October meeting, so for the next few months they expect the ECB to at least retain its “extended period” wording in relation to the stock of asset purchases, and “through the summer of 2019” for rates on hold.

Key Quotes

“Of course, there may need to be some trivial adjustment to the wording at one of the final two meetings of 2018 as “extended period” relates to the period after net asset purchases – which as mentioned are due to cease at the end of this year. But we think that alteration can wait until December when the ECB is likely to confirm the end of net purchases from the following month.”

“On interest rates, we continue to expect the ECB will raise rates slowly from September 2019 beginning with a 15bp rise in the depo rate and another 10bp rise in all rates in December.”

“In the press conference we expect questioning of President Draghi (and Vice President de Guindos) along the lines of: i) Italian/Spanish fiscal policy and contagion to other markets, ii) confidence about rising core inflation in the light of recent disappointments, iii) whether the central bank has discussed its QE reinvestment policy (both timing and parameters – the latter including the time taken between redemptions and purchases, twist and capital keys) and iv) external risks to the euro area (EM, China, protectionism, global interest rates, US fiscal policy and the impact of a disorderly Brexit).”

“In short, with no new macroeconomic forecasts to announce (the next set of revisions is due at the December meeting) and no pressing need to change guidance on interest rates or the ECB’s plans for APP reinvestments, we do not expect too much news from this month’s meeting.”