Daily Management Review

ECB’s Policy Measures In ‘Forward Guidance’ Invite Remarks From Analysts


04/29/2017


Analysts look at late summer or autumn for the ECB to ease up its policy tones.



Following the policy decision taken by ECB, analysts Philippe Gudin & Antonio Garcia Pascual, from Barclays Research, stated:
“In June we expect a change to a less dovish and more symmetric forward guidance that would open the door for depo rate hikes in 2018. In particular, we would expect modifications possibly to both the forward guidance on rates and on QE by removing the explicit reference in the statement to a scenario with lower rates and/or higher QE.”
 
While, UniCredir’s Marco Valli was reported saying:
“We think that the move to a broadly balanced risk assessment for growth will be formalized in June after the runoff of the French presidential election (assuming all goes well there). Once the ECB no longer feels that downside risks prevail, it would probably decide to drop some or all the easing-bias references that currently appear in its forward guidance for interest rates and asset purchases. In our baseline scenario, this would then pave the way for the announcement – probably in September – of a further tapering of asset purchases in 2018”.
 
However, from Rabobank, analysts Bas van Geffen and Elwin de Groot, warned:
“The Governing Council upgraded the risk assessment for growth slightly, but reiterated that the (more important) inflation risk assessment remained unchanged. Going forward, we believe the ECB is likely to increase its risk assessment for Eurozone growth to ‘broadly balanced’ before making any changes to the inflation risk assessment. President Draghi suggested that this also means we should not expect the forward guidance to change in the short-term”.
 
According to Dr. Howard Archer at IHS Markit, the adjustment of ECB’s “asset purchase programme” will be pushed into the month of September, in wait of “German election”. As he said:
“We suspect the ECB will announce late on in 2017 that it is extending its monthly asset purchases into 2018, but at a slowing rate from January rather than suddenly stopping it. It could well aim to end the asset purchases by mid-2018”.
 
Moreover, Jack Allen from Capital Economics sees the “lower” rates interest of interest announced by Mr. Draghi in a ‘shifting’ language, is likely to be removed by the bank “from its forward guidance” only in the month of June, although we may still need to wait for the tightening of policy. In Allen’s words:
“Given the shift in Mr Draghi’s language at today’s press conference, we think that in June the ECB will remove the reference to “lower” interest rates from its forward guidance. While this would end the loosening bias, any policy tightening is still a long way off. We think that the Bank will taper its asset purchases to zero in the first half of 2018, and keep interest rates unchanged until 2019”.
 
However, Oxford Economics’s Ben May reported:
“While the economic recovery in the Eurozone may be gathering steam and political risk may be receding, from a monetary policy perspective the missing piece of the puzzle remains the absence of any build-up in underlying inflationary pressures. Developments in the latter will determine the onset and speed of the removal of the ECB’s non-standard policy measures. The ECB may soften its language over the summer if the economic data continues to strike an upbeat tone, but our view remains that the next major step for the Bank will be in the autumn, when it will outline plans to taper QE”.
 
 
 
References:
www.digitallook.com







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