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22 Oct 2015
ECB QE dilemma reincarnated as downside risks to growth and inflation in the euro-zone prevail - MUFG
FXStreet (Delhi) – Lee Hardman, Currency Analyst at MUFG, suggests that the ECB is expected to leave its monetary policy unchanged but reiterate that it has moved closer to easing monetary policy further.
Key Quotes
“The latest economic data releases from the euro-zone have signalled some loss of growth Momentum and headline inflation has fallen back into negative territory as expected. However, the price of crude oil and the euro have remained relatively stable and financial conditions in the euro-zone have eased modestly compared to at their last meeting. Overall, there is not a compelling reason for the ECB to implement further easing as soon as at today’s meeting.”
“It is likely that the ECB will still want to assess recent developments before receiving the updated staff forecasts in December. If the downside risks result in another downgrade to their inflation forecasts moving them even more uncomfortably below their target it will likely provide justification for further easing in December.”
“We expect President Draghi to leave the door open for further easing as early as in December.”
“The euro would likely weaken more materially if President Draghi also signalled that the ECB is considering lowering the deposit rate further into negative territory although it remains less likely.”
“However, if the ECB leaves it’s policy message relatively unchanged compared to September it could encourage the euro to strengthen modestly as the market would likely conclude further easing as soon as in December appears less likely without a fresh dovish policy signal at today’s meeting.”
“Nonetheless even repeating the policy message from September remains consistent with further easing as soon as in December if downside risks remain and prompt a downgrade to the inflation forecasts. In these circumstances, we see only limited upside risk for the euro from today’s meeting, and expect the euro to weaken heading into year-end as ECB easing expectations are likely to continue to build.”
Key Quotes
“The latest economic data releases from the euro-zone have signalled some loss of growth Momentum and headline inflation has fallen back into negative territory as expected. However, the price of crude oil and the euro have remained relatively stable and financial conditions in the euro-zone have eased modestly compared to at their last meeting. Overall, there is not a compelling reason for the ECB to implement further easing as soon as at today’s meeting.”
“It is likely that the ECB will still want to assess recent developments before receiving the updated staff forecasts in December. If the downside risks result in another downgrade to their inflation forecasts moving them even more uncomfortably below their target it will likely provide justification for further easing in December.”
“We expect President Draghi to leave the door open for further easing as early as in December.”
“The euro would likely weaken more materially if President Draghi also signalled that the ECB is considering lowering the deposit rate further into negative territory although it remains less likely.”
“However, if the ECB leaves it’s policy message relatively unchanged compared to September it could encourage the euro to strengthen modestly as the market would likely conclude further easing as soon as in December appears less likely without a fresh dovish policy signal at today’s meeting.”
“Nonetheless even repeating the policy message from September remains consistent with further easing as soon as in December if downside risks remain and prompt a downgrade to the inflation forecasts. In these circumstances, we see only limited upside risk for the euro from today’s meeting, and expect the euro to weaken heading into year-end as ECB easing expectations are likely to continue to build.”