ecb sep 18 rate decision - preview
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Analysts expect a repeat performance of the ECB
Analysts expect a repeat performance of the ECB's most recent statements this week.

When the European Central Bank’s governing council finishes its first meeting after the summer break, the bank is expected to follow its script from July, which was virtually a carbon copy of June’s forward guidance, analysts said.


On Thursday the bank is scheduled to issue its latest rate decision—no changes are expected—at 1145 GMT, host a press conference with ECB President Mario Draghi at 1230, and release its latest economic projections at 1330.


In June the bank announced plans to halve its monthly asset purchases to EUR 15 billion after September and end the programme in December. At the same time the ECB said it will hold interest rates at current levels through at least the summer of 2019, adding the caveat that both plans could change with economic conditions.


Deutsche Bank Chief Economist Mark Wall said if the bank repeats its plans to end asset purchases, the takeaway should not be a new hawkish stance at ECB headquarters in Frankfurt. “It would be wrong to think that by confirming the end of QE net purchases, the ECB will be encouraging a tightening of financial conditions.


“Inflation remains low and the economic outlook remains clouded by risks. To ensure that inflation continues to normalise, an ‘ample’ or ‘substantial’ degree of monetary accommodation will remain the ECB objective, in our view. The ECB will continue to do this via forward guidance on reinvestments and policy rates.”


Headline inflation in the Eurozone has been above the ECB target of near but below 2pct since June, but core inflation has remained stubbornly low, slipping last month to 1pct.


In a note, Societe Generale Economist Anatoli Annenkov said the bank’s statements following the end of the two-day governing council meeting will be “relatively uninformative”.


“While emerging market turbulence will need to be added to the downside risks, the domestic economy and outlook still look in sufficiently good shape to proceed with the planned halving of the APP in October. The decision to end it in December will however depend on the data in autumn.”


Annenkov said he expects the bank to provide “no clear answers” about trade protectionism, Italy, plans for reinvesting earnings from maturing asset purchases, rate guidance, or upcoming bank appointments. ECB Chief Economist Peter Praet is scheduled to leave in May 2019, and Draghi’s term ends in October of next year.


“On the issue of where rates may be heading after the first hike next year, the council may follow the Bank of England's more indirect practice of commenting on the implied market rate path, as was done in July,” Annenkov noted.


In July, Draghi said the market has correctly interpreted the bank’s intentions. “Enhanced forward guidance has been very effective, as broadly reflected in surveys, market commentary and market prices, in aligning expectations of the future rate path with the anticipations of the governing Council.”


Danske Bank said the message following this week’s meeting will be “for the geeks and may contain few changes on the details and technical adjustments.”


In a note, the Danish lender said that since the last governing council meeting in July, “data has broadly come in according to expectations, which we conclude does not warrant new policy signals from the ECB.


“We expect the ECB to confirm the new EUR15bn purchase rate from October. We could also see the ECB change the wording ‘anticipate’ (regarding ending APP this year) to a stronger word. Such a change would lead to a limited market reaction as a conclusion by the end of the year is already expected.”


Source: ECB
Source: ECB


The ECB’s latest economic forecasts could provide some indication of the next steps for rate-setters (previous predictions in chart above).


SG’s Annenkov said: “We expect the ECB to keep its GDP growth estimate for 2018 largely unchanged or revise it slightly lower in the new staff forecasts (around 2%), while the inflation forecast could be raised due to the slightly weaker currency and higher energy prices. For 2019-20, the outlook should be broadly unchanged.”


Eric Culp, LiveSquawk News - Frankfurt

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