“Neither the economy nor Italy will stop the ECB from halting net asset purchases by year-end,” argues Rabobank’s research team in a recently published report.
Key quotes
“Even if the ECB needs until July for the final details, we expect a very clear ‘preannouncement’ coming Thursday – i.e. by already outlining the broader framework for future policy, or by discussing the few options that the Governing Council is currently actively considering. That should leave markets with enough information to interpret what lies ahead.”
“The staff projections for headline inflation will likely be revised up by a notch or two. However, we believe that this has less to do with wage developments and more with the increased oil prices and the recent depreciation of the euro. Assuming that the staff projections use a similar cut-off date as the average of the prior three years, we estimate that the ECB’s new projections will be based on an oil price of USD 74/bbl for 2018, as opposed to USD 65/bbl in the March SPF.”
“To summarise, we thus expect Mr. Draghi to announce that discussions on the endgame of the asset purchase programme have started in earnest, with a definitive announcement on the ECB’s new strategy to follow in July. We believe that most Council members -including the doves- are now supportive of stopping the net asset purchases by the end of the year. Instead, the more dovish members will most likely start to campaign for a slower hiking cycle, clearer forward guidance, and/or a fresh round of TLTROs further down the road.”
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