According to analysts at ABN AMRO, despite the sharp downgrades in economic growth, the ECB still sees the balance of risks to the outlook as being tilted to the downside.
Key Quotes
“Some further downgrades of its growth and core inflation forecasts may come in June. In addition, even under the current baseline scenario, inflation is seen at just 1.6% even in 2021. This would mark the ninth year in succession that inflation has averaged below the ECB’s goal (close to but below 2%). In these circumstances, there is a significant risk that inflation expectations become dislodged.”
“Indeed, market inflation expectations already clearly point in this direction, despite Mr Draghi’s remark that the ‘probability of inflation de-anchoring is very low’. What more can the ECB do? We think the ECB will most likely push out its forward guidance again and our base case remains that policy rates will remain on hold until December 2020. If the outlook were to deteriorate further than we think, the next step would be to re-launch the asset purchase programme.”
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