ECB does not dismiss further easing - MUFG

Derek Halpenny, European Head of GMR at MUFG, notes that as expected, yesterday’s ECB monetary policy meeting passed without much surprise.

Key Quotes

“The staff forecasts tweaked slightly with the 2016 annual inflation rate up 0.1ppt to 0.2% and the real GDP forecast up 0.2ppt at 1.6%. The only other change was a 0.1ppt cut to the 2018 real GDP estimate to 1.7%. As usual, President Draghi called on governments to do more to boost growth by utilising fiscal policy where available and pushing more aggressively with structural reforms.

The key notable point from the press conference in our view was that President Draghi did not dismiss the idea of additional stimulus despite the fact that the latest stimulus only begins on 8th June. Despite the latest forecasts incorporating the stimulus action and despite the higher crude oil assumption, the 2018 inflation forecast at 1.6% was still below target.

While the staff projections assume 1.7% in Q4 2018, the annual average rate remained at 1.6%. President Draghi acknowledged this miss but added that the ECB wanted to assess the impact of upcoming easing before making any assessment about the need for more. Certainly this sits with our view that the ECB would never halt the current QE program from EUR 80bn in March 2017 to zero in April and some form of tapering that sees QE continue perhaps through to the end of 2017 appears the most likely next step later this year.”