European Central Bank Preview: Forecasts from 13 major banks

The European Central Bank is expected to leave its current bond-buying program unchanged at a total scope of EUR1.85 trillion yet speculation is rife about the current pace of purchases. The ECB releases its decision at 11:45 GMT while ECB President Christine Lagarde begins her press conference at 12:30 GMT.

Here you can find the forecasts by the economists and researchers of 13 major banks regarding the upcoming ECB June’s meeting.

See – European Central Bank Preview: Why June's decision presents a buy the dip opportunity

Danske Bank

“The ECB meeting will focus on the financing conditions, PEPP implementation and cautiously optimistic view on demand amid weak CPI outlook. ECB is expected to raise its growth projections by 0.3pp for this year and next year. We expect ECB’s PEPP purchase guidance to shift from ‘significantly’ to ‘moderately’ higher than at the start of the year, i.e. we expect PEPP buying to be EUR70 bn/month in Q3 versus the current net purchase pace of EUR80 bn/month. We do not expect the meeting will alter our tactical nor strategic view on the rates (range trading & spread compression) outlook or FX (strategically stronger USD).”

Rabobank

“The summer lull provides the ECB with an argument to reverse the March increase. It would be in line with the traditional summer slowdown in APP purchases as well. The Council will go to lengths to stress that this is a technical adjustment, that the PEPP continues to be dictated by financial conditions and that this is not the start of tapering. A likely upgrade of the near-term outlook may cause the market to interpret this as hawkish, so we expect the ECB to stress that the medium-term inflation goal is still far from reached. We expect the deposit rate unchanged at -0.50%, APP steady at EUR 20bn/month and the PEPP envelope unchanged at EUR1,850 bn. We expect a ‘technical adjustment’ to the PEPP pace, with a ‘slightly lower’ pace through Q3, but we acknowledge the risks are skewed towards a delay of any such slowdown. By end-2021, the ECB will probably announce a shift in focus from PEPP into APP and other ‘more standard’ unconventional tools.”

Nordea

“While the Governing Council remains divided, the majority is likely to support a decision to continue buying bonds at close to the current pace, as the recovery is not yet on a solid footing. PEPP buying volumes are likely to fall clearly already in August, and we see the ECB deciding on lower purchase volumes at the September meeting and ending the net PEPP purchases by the end of March 2022. While market expectations have already shifted amidst dovish ECB commentary, a decision to continue buying at the current pace would support a pause in the trend of higher yields. We expect yields to rise again and the EUR/USD to fall in the second half of the year. We think there will be only limited changes to the ECB staff projections in June, but see clear upside risks to the ECB’s extremely low inflation path.”

CE

“We think the ECB will tweak its monetary policy statement by pledging to maintain favourable financing conditions but not renewing its pledge to keep PEPP purchases at the recent ‘significantly higher’ pace for the next three months. This would prepare the ground for a very gradual taper beginning in Q3 and for net PEPP purchases to come to an end next March. But with expected inflation likely to remain well below target next year, we think policymakers will increase monthly APP purchases when the PEPP ends.”

TDS

“We look for the ECB to maintain the language in the press release that PEPP purchases will continue ‘at a significantly higher pace than during the first months of the year.’ However, we think that purchases will ultimately be reduced in Q3 due to seasonal/liquidity issues, rather than the macro outlook or financing conditions. Like other central banks, the ECB will view the near-term pick-up in inflation as transitory, with no impact on its longer-term inflation forecasts. All else equal, our base case for a moderately dovish outcome suggests some downside risks for EUR/USD this month.”

Nomura

“We expect the central bank to focus on: 1) a well-below-target medium-term inflation forecast and 2) the recent rise in euro area bond yields, which we expect it to view as unwarranted. As a result, we think the ECB will announce a continuation of PEPP purchases at the current rate to at least September 2021. Thereafter, we expect PEPP purchases to be reduced to EUR15 bn per week. Taking into consideration lower purchases in August, December and January due to market liquidity, the ECB may exhaust its PEPP envelope by April 2022. We expect the ECB to use the full PEPP envelope, but not expand the programme further. We expect the central bank to rethink its policy mix towards the end of 2021. According to ECB staff projections, inflation is likely to remain well below target into 2023. As a consequence, we think that once the PEPP is complete the ECB will decide to increase monthly purchases under its more permanent APP and possibly increase the programme’s flexibility, and rethink the role of its lending programmes (TLTROs) to make them more permanent post-pandemic tools.”

ING

“We see the main objective of the day being to avoid taper talk. Rates markets have backed away from the idea that the ECB will slow down PEPP purchases – potentially meaning there is little downside for the EUR from this meeting. Yes, the ECB will not want to do anything to encourage a stronger EUR, yet it seems hard for them to adopt any more of a dovish position than they have already.”

Deutsche Bank

“We expect the ECB to maintain the faster pace of PEPP purchases for the time being. However, they expect that after June the market focus will be on PEPP exit, as it is a pandemic policy and we expect exit to be confirmed in September or December.”

BMO

“We expect upgraded forecasts for growth and inflation and they, along with a faster rate of vaccinations, present a clear case to slow the bond buys moderately, at least from the PEPP. In fact, slower purchases in the emergency program can be offset by raising the monthly purchases from the APP. However, any changes to policy are highly unlikely as all ECB officials have relayed the same message over the past month: it is too early to map out an exit, too early to slow things down, and that continued policy support is still needed. And, President Lagarde proclaimed in early June that ‘strong policy support’ will be there ‘well into the economic recovery.’ She may even borrow some wording from the Fed emphasizing that yes, things have improved, but they are not there yet, and it will take time before substantial further progress is seen. And, the ECB head may also borrow an adjective from the IMF and the OECD and call the recovery ‘uneven’.”

MUFG Bank

“The improving growth outlook is unlikely to prove sufficient though to prompt the ECB to announce a slowdown in the pace of QE purchases as early as at this week’s policy meeting. As a result, we expect the ECB to signal this week that ‘purchases will be maintained at around the current pace’. The market reaction should be limited as euro-zone yields have already adjusted lower in recent weeks. In the first hour following the last two ECB policy decisions, the EUR has weakened marginally. We expect a similar reaction this time around.” 

SEB Bank

“ECB is unlikely to signal lower purchases on Thursday. The market has been speculating about the ECB moderating its asset purchases at the next meeting on 10 June. Despite the higher weekly purchases since March, nominal rates and the euro have risen, while long-term inflation expectations remain well below target. With the inflation outlook still muted and risks associated with the near-term recovery, it makes little sense for the ECB to indicate tighter policy already now. We expect Pres Lagarde to repeat that PEPP is flexible and the bank aims to keep financial conditions unchanged. We see a clear risk that ECB’s dovish message on Thursday could erase some gains in EURUSD and moderate hike expectations in the short end of EUR OIS curve.”

Citibank

“We expect the Governing Council will choose to maintain its current pace of purchases under PEPP at a net amount of approximately EUR80 bn per month, and avoid conveying any specific message on what happens afterwards, either before or after March 2022 (the end-date of PEPP by default).”

ABN Amro

“We judge that the ECB will announce that it will sustain net purchases under the PEPP at the ‘significantly’ higher level in Q3 following the step-up in Q2. We expect the central bank to revise its projections for growth and inflation somewhat higher throughout its forecasting period. Still, we expect the projections for core inflation in 2023 (probably 0.1pp higher than in the March projections) to remain well below the ECB’s policy target. Having said that, history has thought that the ECB has the tendency to overestimate inflation in the medium-term and it could continue to do so. The ECB could well also announce in June that the risks to the economic outlook are now ‘balanced’ rather than to the downside. This is because of the progress with the vaccine roll-out has strengthened the probability of the baseline scenario which sees a re-opening of economies over the coming weeks. Indeed, the first steps have already been taken.”