Research Team at RBS, notes that as expected the ECB left all its key monetary policy settings unchanged yesterday.
Key Quotes
“There were no changes either to the design of the APP, despite market conjecture that there would be. Mr Draghi made it clear instead that any changes – should they be necessary - would occur when the ECB staff release new growth and inflation forecasts in September.
The Governing Council is clearly waiting to see how recent UK events might impact the Eurozone economy. If – as we expect - there is a negative impact and the incoming growth and inflation data disappoint the ECB’s (and consensus) expectations in the coming weeks the door is wide open for looser policy settings to be enacted.
We still expect another 10bps cut in the depo rate and an uplift of €20-25 billion in the QE programme to be enacted at the next meeting on 8th September. That uplift will require more substantial changes to the APP programme given the looming bottleneck issues and if the policy change is to look credible.
The risks to the timing of this view moreover are tilted toward some easing that arrives later than this. That’s because the world economy is holding up a little better than we had anticipated a few weeks ago. The ECB might also want more time (than we expect) to assess the economic impact of its CSPP and TLTRO2 programmes.”
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