BCB: Doves in a cage – TDS

Sacha Tihanyi, deputy head of emerging markets strategy at TD Securities, points out that the BCB has revised lower its inflation outlook, but continues to point to the economic reform process as crucial, implying the constraint it poses for monetary policy action.

Key Quotes

“Policy makers did drop elements of the statement that emphasized monetary policy stability, and while not signalling an imminent rate cut, it does open up future policy flexibility to some degree, contingent on continued economic reform in Brazil.”

“We remain of the view that the BCB sits on hold for 2019, at least until pension reform is closer to completion, but we push out our call for future tightening by 6 months to Q3 of 2020. The bias of near-term risk to our view remains for additional easing in 2019.”