In the view of the Senior Analysts at Danske Bank, the European Central Bank (ECB) is likely to announce some alterations to its forward guidance at the July meeting, setting the stage for the rolling out of a comprehensive stimulus package at the September meeting.
“It is a matter of when and how rather than if ECB will ease monetary policy. After Draghi’s dovish Sintra speech, lack of improvement in growth and inflation, and comments from ECB GC members, the case for further easing has strengthened.
We expect the ECB to tweak forward guidance at the July meeting, setting the scene for a comprehensive easing package to be unveiled in September (depo rate cut, tiering, QE restart and forward guidance). We could already see the ECB tasking committees to examine the easing package including tiering (again).
FI Markets may be disappointed at the July meeting for lacking details on new stimuli. However, we would expect any FI sell-off to be short-lived as focus turns to the expected easing at the September meeting.
For FX, we expect the September meeting to be more pivotal than the July meeting. As leadership change at the helm of the ECB gets underway, both Mario Draghi’s Sintra speech and the June minutes all but confirmed that Draghi’s term will culminate in another big easing package.”
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