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EMU CommentECB: "Continuous confidence with increasing caution"

  1. The end of asset purchases is a fact
  2. Risks are still broadly balanced
  3. ECB delivered a vague dovish signal
The end of asset purchases is a fact
The ECB policy meeting resulted in the expected announcement of asset purchases under the APP programme ending by year end. Furthermore, the overall guidance on key ECB rates was kept unchanged with ECB interest rates set to remain at their present levels at least through the summer of 2019. The only new measure introduced was an enhancement of the forward guidance relating to the reinvestments of principal payments from maturing securities purchased under the APP, which now was stated as to run past the date where the ECB starts hiking rates and as long as necessary. We think that this was a rather vague dovish signal, as this likely was priced in by most people already.
Risks are still broadly balanced
There were only marginal revisions in the updated staff forecast from the ECB which were fairly in line with expectations. GDP growth this year and next year were only revised down trivially by 0.1 percentage points (see table) with a further slowdown to 1.5 percent in 2021. More interesting in this respect was that while Draghi added that incoming information had been weaker than expected, noting weaker external demand and adding uncertainties stemming from geopolitical risks, he reiterated that risks were broadly balanced, albeit moving to the downside. Expectations in the market were probably biased towards a full move to “risks on the downside”. The inflation outlook was revised up this year and down next year by 0.1 percentage points, while seen increasing to 1.8 percent in 2021. This were very modest revisions even though Draghi did see that inflation will decrease in coming months (due to energy prices).
ECB delivered a vague dovish signal
Our view is that the ECB’s move on the economic outlook and policy guidance was kept at a minimum and at the smallest possible margin compared to expectations. Draghi put it well in the Q&A where he repeatedly stated that the ECB’s stance was “continuous confidence with increasing caution”. The upshot is that when it comes to the signal for future monetary we received a relatively vague dovish message that does not change our outlook for the future path of ECB monetary policy – with the signal that ECB will take it’s time and remain cautious in its removal of monetary accommodation.

Source: Macrobond


Rasmus Gudum-Sessingø

Senior Economist


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