ECB to extend QE purchases by six months - Danske Bank

According to analysts from Danske Bank, the European Central Bank will announce on Thursday an extension of its QE purchases by six months to September 2017 and maintain the amount of its monthly purchases at EUR 80 bn. 

Key Quotes: 

“We expect the ECB to extend its QE purchases by six months to September 2017 and maintain the EUR80bn monthly purchases. The continuation of the QE programme should follow as inflation – despite the outlook for an increase – is still not on a sustained path towards the 2% target, which the ECB has defined as the condition for ending the purchases.”

“Lately there has been a lot of speculation on QE tapering, but in our view it is too early to expect an announcement about ending QE. Very prominent ECB members including President Draghi have increasingly emphasised the lack of upward pressure on underlying prices, which together with an expected considerable downward revision to the ECB’s core inflation forecast, should convince enough of the ECB members that it is too early to consider an end-of-easing.”

“We expect the ECB to publish an inflation projection which is close to the one from September but not very optimistic on 2019. Especially the core inflation outlook should be lowered, reflecting a lack of upward pressure on wages due to slack in the labour market.”

“We believe the ECB will allow ‘some flexibility’ on all measures, but in practice we expect actual buying below the deposit rate or above the 33% issue/issuer limit will be limited. We do not expect a new buying distribution scheme but consider continued deviation from the Capital Key very likely when other restrictions are hit.”