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Analysts at Rabobank suggest that given the recent disappointing data, and a deteriorating global outlook – both in terms of protectionism and the more recent emerging markets crash – investors weren’t really surprised by yesterday’s ECB leaks, which suggested the central bank will lower its growth outlook slightly in its new projections to be released alongside today’s monetary policy decisions.

Key Quotes

“Yet, the Eurozone economy remains solid enough for the ECB to push ahead with their plans – even if some cracks are appearing along the edges. So we fully expect the ECB to cut purchases to EUR 15bn as of October.”

Despite some imminent changes to the ECB’s monetary policy, this week’s Governing Council meeting shouldn’t bring any surprises. Back in June, the Council already communicated its intention to cut the asset purchase programme to EUR 15bn per month for the final quarter of 2018, and little information has since come to the fore that might change the Council members’ minds.”

“So there is nothing in the way to prevent the Council from rubber-stamping this planned reduction. Aside from that, we do not think that the Governing Council will make any other changes at this stage; more specifically,  we expect the current forward guidance to remain unchanged, since that preserves some much-coveted flexibility on part of the ECB.”

“The above mentioned leaks -if indeed correct- do add to the odds that President Draghi will remain relatively on the dovish side as he explains the Council’s decisions. Such dovishness would most likely result in a flatter money market curve, because -as we have argued in the past- the ECB’s primary response to any economic setback will most likely come in the form of forward guidance and delayed rate hikes.”

 

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