ECB: Expect a gradual taper through 2018 and no rate rises - HSBC

Analysts at HSBC still expect a gradual taper from ECB through 2018 and no rate rises at the moment.

Key Quotes

“Despite stronger growth, our view on the ECB remains little changed.  When the current QE programme expires in December we expect it to taper its asset purchases, initially to EUR40bn per month.  We expect a further reduction, to EUR20bn, in Q3 2018 and by the final quarter of next year we think the ECB will no longer be making net purchases.  But we think its key policy rates will stay on hold through this period, in line with its forward guidance.”    

“In theory, the reductions to the ECB's inflation forecast in June (to average just 1.6% in 2019) shift the balance of risks toward a later tapering than in our central case.  However, there are practical reasons why QE may need to ramp down.  The ECB's own rules limit what it can buy and in some cases (such as the 33% issuer limit) these reflect hard legal constraints.  At some point, a QE exit may be a necessity.  Moreover, the jury remains out on whether additional QE is actually doing much to raise underlying inflation.”