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EMU CommentECB takes another baby step toward tightening

  1. ECB drops easing bias
  2. Minor tweaks to verbal intervention and ECB projections
ECB drops easing bias
At today’s policy meeting, the ECB decided to remove the easing bias in its asset purchase programme by excluding the possibility of increasing the programme's size or duration. The decision was unanimous within the Governing Council; as a consequence, the ECB is finally left with a more or less neutral monetary stance. Even though few would have expected the ECB to make use of this bias ahead of its removal, it still signals another baby step away from the present easy monetary policy. In our view, this possibly pushes the next step closer toward an outright tightening bias in the forward guidance, which would likely exclude key interest rates remaining low for an extended period of time. That said, we do not expect this step to be taken until June at the earliest, when we expect a gradual rising trend in inflation to have become more visible. Furthermore, Draghi stressed that there was not much discussion about other policy changes.
Minor tweaks to verbal intervention and ECB projections
Elsewhere, Draghi reiterated the need to monitor FX changes and added general financial conditions with regard to possible implications for the medium-term price outlook (see graph). Hence, higher market interest rates have possibly also caught the ECB’s attention since the last policy meeting in January. With regard to the economic staff forecasts, the growth outlook was only revised marginally upward to 2.4 percent for 2018 (see table) reflecting a “somewhat higher pace” of economic expansion. However, the ECB placed risks further on the downside by adding rising protectionism. Meanwhile, the inflation forecast was revised downward slightly to 1.5 percent for 2019. Recently, the more subdued readings have been mainly due to lower food prices.

Source: Macrobond



Rasmus Gudum-Sessingø

Senior Economist


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