On Thursday, the European Central Bank will have it Governing Council meeting. According to analysts at Wells Fargo, the ECB is likely to look through negative inflation in the Eurozone, at this time and wait a little bit longer for stimulus to filter down to the real economy. However, they warn, that if inflation continues to remain at subdued levels for longer than expected, they expect additional stimulus to be implemented.
Key Quotes:
“Monetary policy has turned significantly accommodative as central banks around the world try to offset the impact of COVID-19, and the ECB has been no exception. Over the last six months, the European Central Bank has moved forward with additional asset purchases as well as a Eurozone-wide fiscal stimulus packages that will direct funds to the most affected countries. The economy has shown signs of a rebound; however, recently there have been some setbacks. Confirmed cases have started to rise again and this week CPI inflation fell into negative territory.”
“In our view, the decline in CPI is somewhat notable given the amount of fiscal and monetary stimulus that has been pumped into the economy. We doubt the ECB moves forward with any new policy initiatives to combat the drop in inflation at this time; however, should inflation remain negative and price pressure do not build, the ECB may be forced to take action in the near future.”
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