ECB to hold off and wait until December to move – ABN Amro

Economists at ABN Amro still stick to a call for a December announcement from the European Central Bank (ECB) despite the strong arguments in favour of early action. The euro’s upward trend has fizzled out over recent weeks and the EUR/USD has just lost the 1.17 level on Thursday.

Key quotes

“There appear to be differing views in the Governing Council on whether to continue with a wait and see approach. Executive Board member Fabio Panetta, the Governor of the central bank of Spain Pablo Hernández de Cos, the Governor of the central bank of Finland Olli Rehn and to a lesser extent Chief Economist Philip Lane have made the case for further stimulus. On the other hand, ECB Vice President Luis de Guindos, Bundesbank President Jens Weidmann, DNB President Klaas Knot and the Governor of the Banque de France François Villeroy have made the case for waiting. ECB President Lagarde appears to want to build a strong consensus before taking action.”

“Many officials may judge that there is still plenty of room within the PEPP to step up purchases in the coming weeks as downside risks intensify (though it is surprising they have not done this already).”

“Although the ECB may already judge that further stimulus is necessary, it may need more information to decide on the shape and size of that stimulus. The Governing Council will have the new macro staff projections in December, while it will also be clearer how the second wave of the virus and government restrictions are evolving. Finally, the ECB could already signal at this month’s meeting, that it is very likely that stimulus will be announced in December.”