According to Nick Kounis, head of financial markets research at ABN AMRO, ECB’s has not managed to achieve its key monetary policy objective of maintaining inflation rates below, but close to, 2% over the medium term.
Key Quotes
“Economic growth has slowed to below-trend rates. Indeed, in the second half of last year, the economy expanded at rates around half the trend rate. While we expect the economy to regain some traction during the course of this year, we do not expect a return to the strong rates of expansion necessary to keep unemployment on a downward trend.”
“To make matters worse, the link between wage growth and inflation might be weak in the current macro environment, increasing the challenges for the ECB’s strategy.”
“Our view is that underlying inflationary pressures will remain subdued, with core inflation likely to significantly undershoot the ECB’s current projections. To get the inflation strategy back on track, the ECB needs to maintain its highly accommodative monetary policy stance for longer. It may possibly need to add stimulus to get the economy running hot again depending on global economic developments.”
“We expect the ECB to keep interest rates on hold until 2020. However, we see the risks skewed towards an even longer period of unchanged interest rates given the slow growth environment and subdued underlying inflationary pressures. Furthermore, we expect the ECB will announce an extension of its TLTRO programme.”
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