At today’s meeting, the European Central Bank made no policy adjustments. According to analysts from Rabobank, Mr. Draghi acknowledged that recent data had been somewhat weaker than expected, but gave various reasons why this didn’t worry the Council yet. They believe that these reasons may indeed be part of the reason why the ECB keeps expressing confidence but at the same time, they suspect that their desire to end purchases means that Draghi didn’t want to signal any concerns.
Key Quotes:
“The ECB’s statement was in line with last month’s. The ECB kept all its interest rates on hold, and did not change the forward guidance that rates are expected to “remain at their present levels at least through the summer of 2019, and in any case for as long as necessary”. Similarly, the end of net asset purchases after December is still only “anticipated” and “subject to incoming data”.”
“The ECB sees various countryspecific factors, such as an underperformance of the German car industry due to changes in regulations. Secondly, there is a slowdown in exports, which is partly driven by a normalisation after an extraordinarily strong performance in 2017 and partly due to ongoing trade uncertainties. Additionally, Brexit and Italy were mentioned, as well as the fact that growth is simply slowing down from an above-potential growth. Draghi went on to argue that these various causes of weaker data make it difficult to distinguish
between transitory or permanent factors, as well as country-specific or Eurozone wide causes.”
“It sounds like the Council wouldn’t be too surprised if the outlook for Eurozone growth is reduced a bit in the next staff estimates. Indeed, we see few indications that the outlook will brighten substantially in the coming months.”
“A few relatively dovish words on future policy may have triggered this decline in EUR/USD. Although Draghi noted that the Council hadn’t really discussed any future policy steps, the ECB President did hint at the fact that “two members” had raised the issue of TLTROs. He didn’t go into detail on the context in which these were mentioned. However, we would point at the Council’s assessment that “an ample degree of monetary accommodation is still necessary” as well as Draghi’s remarks that any next policy steps will only be discussed when the new December projections are available. The combination of these comments gives the notion that although the ECB wants to end asset purchases and may start a hiking cycle somewhere next year, there may still be some other easing measures – such as a new series of (T)LTROs.”
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