ECB Watch: Draghi’s last shot – Nordea Markets

According to analysts at Nordea Markets, the European Central Bank (ECB) Chief Draghi is likely to announce a fresh easing policy as soon as this September before he ends his term as the ECB President in October.

Key Quotes:

“With only three ECB meetings to go it would be tempting to label Draghi a lame duck. He is far from that, and we now expect him to engineer another easing package at the September meeting. Rates still have some downside potential left.

In light of the new signals from the ECB and our more negative stance on how the economy will develop in the second half of this year, we add more ECB stimulus to our baseline. We now expect another easing package announced at the September meeting, consisting of

• A 10bp cut in the deposit rate.
• EUR 30bn a month of net asset purchases, coupled with an increase of the issuer limit (for Euro-area governments) from 33% to 49%.
• Changed forward guidance: rates to remain at present levels or lower (and possibly dropping the date-based element and linking the state-based element more concretely to the inflation outlook).

Even after the September meeting, we expect the ECB to retain a clear easing bias and be prepared for another easing package at the December meeting or later (another 10bp cut in the depo rate and lifting the pace of purchases to EUR 60bn a month). “