What can we expect from the ECB policy meeting on Thursday?
Here is their view, courtesy of eFXdata:
MUFG Research discusses its expectations for this week’s ECB December policy meeting on Thursday.
“The ECB is set to “recalibrate its instruments” this week and while we would argue the forecasts to be published won’t change dramatically, we are likely to see a EUR 500bn increase in PEPP, which will be utilised to extend the degree of monetary stimulus through to the end of 2021. However, with the EUR 120bn addition to the APP ending this month, the overall PEPP size increase could be EUR 600bn in order to ensure the current QE pace can be maintained. TLTROs will also be added to the 2021 calendar, likely on the same terms as now (potential for rate of -1.0%). We expect the deposit rate to remain at -0.50%,” MUFG notes.
“The EUR REER is only marginally above the 5-yr average and remains around 13% below 2008-09 highs and hence the justification for serious complaint over EUR strength is not there. The appreciation is disinflationary of course but we see it as most likely that we merely get a repeat of previous comment that EUR moves play a role in monetary policy deliberations. A rate cut would be most effective but it is not justified at this stage. We do not expect any major surprises this week and hence EUR is set to remain well supported within what looks like a new trading range of 1.2000-1.2500,” MUFG adds.
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