ECB: A small concession from the doves - Rabobank

At today’s meeting, the European Central Bank left rates and QE unchanged. According to analysts from Rabobank, the slight changes in the staff projections were mainly technical of nature, and the new
forecasts did not materially change the ECB’s earlier outlook and the marginal change in the statement is the precursor of a more substantial revision of the communication strategy in summer, before the ECB unwinds QE altogether by end-2018.

Key Quotes: 

“It should come as no surprise that the Governing Council left its interest rates on hold, and reconfirmed its pledge on the asset purchase programme. The forward guidance was also left unchanged, with a pledge to keep QE running “until the end of September 2018, or beyond if necessary and in any case until the Governing Council sees a sustained adjustment in the path of inflation consistent with its inflation aim.” However, a small concession was indeed made by the doves, as the easing bias on purchases was dropped (i.e. the ECB no longer explicitly pledges to increase the size of the purchase programme in case the outlook deteriorates).”
 
“We believe that Mr. Draghi did hint at a potential extension of net purchases beyond September. First off, as noted above, Mr. Draghi explicitly reiterated that only the option to increase the monthly pace was removed today, not the option to extend. Furthermore, when
asked whether he believed that stocks or flows were more important, he noted that even though the size of the ECB’s balance sheet has gained significant importance as the purchase programme progressed, flows still matter too because of the sequencing in the ECB’s guidance. Whilst one can argue that this is largely the effect of Mr. Draghi putting a lot of emphasis on the fact that rates will not rise before the net asset purchases have stopped, it does argue that the Governing Council may opt for a small extension of the net purchases beyond September.”

“We therefore stick to our call for a 3 month taper beyond the current programme, which will then see the net asset purchases being phased out completely by end-2018.”