ECB preview: Too early to discuss tapering – Danske Bank

Research Team at Danske Bank, do not expect any new announcements from the ECB at the meeting next week.

Key Quotes

“President Mario Draghi will, in our view, balance his tone, reflecting the economic resilience to political uncertainty on the one hand but on the other hand, sound dovish, as the ECB is concerned about the subdued underlying price pressure and weakness in the banking sector.

We expect Draghi’s main message to be that the ECB’s focus is on full QE implementation. Draghi has remained on the sidelines in the recent tapering debate, which started after ECB officials allegedly said that the ECB is considering QE tapering options once the programme ends. In our view, it is too early to discuss tapering but following last week’s unconfirmed reports, it will remain a topic going forward.

At the following ECB meeting in December, we expect the ECB to announce an extension of the QE purchases by six months without pre-announcing tapering. The QE extension should follow although inflation is set to rise in coming months but reflect the lack of upward trend on core inflation. In our view, there is a risk the ECB will extend QE again later due to low core inflation.

We do not expect the ECB to adjust its self-imposed QE restrictions ahead of a potential extension of the purchases in December. In our view, the ECB could continue to deviate from the capital key without introducing new buying distribution. Currently, we do not consider it very likely that the ECB allows large-scale buying below the deposit rate.”