ECB to end QE with CPI well below target, growth slowing and messy politics – Rabobank


Analysts at Rabobank offer a sneak peek at what to expect from the final European Central Bank (ECB) monetary policy decision for this year that will be announced at 1245 GMT, followed by Draghi’s presser at 1330 GMT.

Key Quotes:

“The ECB will maintain the risk assessment of “broadly balanced”, and recent solid wage data will probably be Mr. Draghi’s key argument when selling the ECB’s economic outlook. Forward rates guidance is likely to remain unchanged at “through the summer of 2019”, the end of net asset purchases is likely to be confirmed, reinvestment modalities will highlight flexibility, and there will be no explicit maturity extension (i.e. no Twist).

A new capital key will likely only be applied to asset reinvestments, there will be no active rebalancing of the ECB’s portfolio, and only minor changes to the forward guidance, with no provisional to-be end-date specified. In terms of LTROs, they expect no announcement in December, but potential hints to pave the way for these in 2019Q1.

Put another way, ECB monetary policy is now as fantastically complicated as in China; but put more simply, they are going to stop QE with CPI well below target, growth slowing, and politics looking messy, and then keep their fingers crossed it isn’t a huge policy error, leaving EU citizens and markets to cry “Despicable them!”

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