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Nick Kounis, head of financial markets research at ABN AMRO, suggests that following the 10bp deposit rate cut, they think the ECB will continue to signal that its key policy rates could be cut further through its forward guidance.

Key Quotes

“In addition, given the re-start of net asset purchases, it could once again link the horizon to the period of QE. So the Governing Council could state that it expects the key ECB interest rates ‘to remain at their present or lower levels well past the horizon of net asset purchases, and in any case for as long as necessary to ensure the continued sustained convergence of inflation to our aim over the medium term’.   This would signal interest rates would remain on hold or lower at least until early 2021.”

“The current guidance is the first half of 2020. Despite the extension, markets already expect the ECB to cut rates and keep them low through 2021, so it would unlike fuel a reduction in market rate expectations.”