Analysts at ABN Amro explained that the weaker outlook for economic growth and core inflation will not prevent the ECB from ending its net asset purchases in December.
Key Quotes:
“That looks like a done deal, even though the central bank has said it is data dependent. We think it will turn to other tools, in particular the forward guidance on interest rates and reinvestments, in reaction to the weaker outlook. We think that in the first half of next year, the ECB will change its forward guidance on interest rates to signal that policy rates will remain unchanged next year.
In addition, we expect it to signal that reinvestments will continue well past the period of unchanged rates. We do not expect the ECB to end reinvestments until late in 2021.”
“There is obviously a lot of uncertainty when it comes to calling rate changes that are meant to take place so far into the future. A lot can happen between now and then.
One particular ECB-related uncertainty is that we will see a new Chief Economist and President by the end of next year. It seems to us that the most likely candidates will be centrists, with if anything, a dovish tilt, which would tend to support a very slow policy normalisation in the macroeconomic environment we sketch above.
Philip Lane, the current governor of the central bank of Ireland, seems the most likely candidate to be the new Chief Economist.
At the same time we think that Erkki Liikanen (former Governor of the central bank of Finland), Benoit Coeure (ECB Executive Board member) and Francois Villeroy (Governor of the Banque de France) are the front runners for the position of President. (Nick Kounis & Aline Schuiling).”
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