Anna Stupnytska, Global Economist at Fidelity International, comments on the latest ECB meeting.
Key Quotes
“At yesterday’s press conference, Draghi emphasised the ECB’s determination to continue with extraordinary policy accommodation, but did hint that QE will not last forever. This is consistent with my view in that while monetary stimulus is unlikely to be completely withdrawn in 2017, the ECB’s appetite for additional accommodation should fade through the year.
“The latest Euro area data continues to point to stable (albeit unspectacular) growth ahead and, at the same time, inflation trends are getting more positive—the headline is set to continue picking up modestly, mainly on base effects from higher energy prices for now, but core should also drift higher. This improvement in the inflation picture should allow the ECB to marginally reduce its stimulus in 2017, by tapering its QE programme.
“This could be achieved by extending the QE timeline from March 2017 (by 6-9 months), and at the same time lowering the size of monthly purchases from current levels. This decision, together with widening the universe of assets available for purchases, could be announced as soon as December.
“Beyond that, due to financial sector concerns, I believe the ECB will hike the depo rate back to zero as the costs of negative rates start to exceed the benefits. But given a number of risks on the horizon, including the Italian referendum in December, the start of Brexit negotiations in 2017 as well as French and German elections, they are likely to postpone this decision until later in the year.”
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