With slightly more than a week to go before the 14 June meeting of the ECB in Riga, speculation about the possible outcome of that meeting has gained traction, suggests Carsten Brzeski, Chief Economist at ING.
Key Quotes
“This morning, a remarkable speech by ECB chief economist Peter Praet gave a clear hint that even the ECB hawks seem to be fine with a gradual end to QE this year.”
“Speculation about the ECB’s plans began last night with a Bloomberg article quoting ECB officials as saying there “is a real chance of policy change” at next week’s meeting. Praet’s speech this morning supported this view. The two main quotes/messages from Praet’s speech in our view were:
- The Governing Council has three criteria for assessing whether there is a sustained adjustment in the path of inflation towards levels below, but close to, 2% over the medium term: first, the convergence of the projected headline inflation to our medium-term aim; second, confidence in the realisation of this convergence path; and third, the resilience of inflation convergence even after the end of our net asset purchases
- Signals showing the convergence of inflation towards our aim have been improving, and both the underlying strength in the euro area economy and the fact that such strength is increasingly affecting wage formation supports our confidence that inflation will reach a level of below, but close to, 2% over the medium term. As for our third criterion, resilience, waning market expectations of sizeable further expansions of our programme have been accompanied by inflation expectations that are increasingly consistent with our aim.”
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