Laurent Clavel on today's ECB decision
Laurent Clavel on today's ECB decision
Laurent Clavel, head of Macro Economic Research at AXA IM comments on today’s ECB decision
- As we expected, the ECB remained on hold on 7 September, with no change in rates or non-conventional policy (QE) and unchanged forward guidance with the QE easing bias kept (“the Governing Council stands ready to increase the programme in terms of size and/or duration”)
- Broadly unchanged macro outlook in the medium run, upwards for growth in 2017, slightly downwards for inflation in 2018 and 2019, mainly reflecting the euro appreciation
- Recent volatility in exchange rate represents a source of uncertainty which requires monitoring in terms of impact on inflation
- President Draghi confirmed in the Q&A the October rendezvous for the “bulk of the decisions”. We confirm our expectations to see the ECB announce a reduction in the pace of asset purchases from €60bn per month until December 2017 to €40bn in the first half of 2018 “and beyond if necessary”
- We also expect the ECB and its President to keep repeating and insisting on its forward guidance regarding the sequencing, with QE tapering first and interest rate normalisation only “well past” QE is over, i.e. in 2019
- Market reaction is insignificant so far: mild euro appreciation (going beyond 1.20$/€) whereas Bund yields went down (about 1bp) and peripheral spreads were unchanged
As we expected, ECB staff macroeconomic projections were revised upwards for growth in 2017 (now in line with AXA IM and significantly above consensus), taking stock of the upside surprise on 2017 Q2 GDP as well as business surveys holding up. Projections were revised slightly downwards for inflation in 2018 and 2019, mainly reflecting the euro appreciation.
ECB staff macroeconomic projections (September 2017)
|GDP growth||2.2 (+0.3pp)||1.8 (-)||1.7 (-)|
|Headline inflation||1.5 (-)||1.2 (-0.1pp)||1.5 (-0.1pp)|
Note: In brackets, changes compared to June ECB staff projections
President Draghi first announced “this Autumn we will decide on the pace beyond December 2017”, then precise the schedule in the Q&A. When challenged on this pre-commitment, President Draghi said the ECB should be ready by October; but that the decision would be postponed if they were not ready. We do not see this comment as significant and expect the October meeting to indeed provide most of the details surrounding QE beyond December 2017.
Market reaction is insignificant at the time of writing / end of press conference. The euro appreciated very slightly during the press conference (going beyond 1.20$/€) whereas Bund yields went down (about 1bp) and peripheral spreads were unchanged.
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