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ECB sends strong signals for December easing – ING

FXStreet (Delhi) – Carsten Brzeski Chief Economist at ING, notes that the ECB has clearly increased its chances, sending strong hints on new monetary stimulus at the December meeting.

Key Quotes

“While no decision was taken, the ECB’s sounded more concerned about the growth outlook for the Eurozone and signaled its willingness to act. According to ECB President Draghi, few members of the Governing Council were already willing to act yesterday.”

“Against the background of increased concerns about growth, and related second-round effects on inflation, ECB President Draghi opened the door to more monetary stimulus in December. In this regard, the key statements at yesterday’s press conference were “the degree of monetary policy accommodation will need to be re-examined at our December monetary policy meeting” and that the ECB already today had a “rich discussion and was “open to a whole menu of monetary policy instruments”.”

“Draghi remarked that the ECB had tasked several committees to work on the implementation of possible instruments. He called this a “work-and-assess” stance. Finally, Draghi also mentioned a lowering of the deposit rate as a possibility for future action, even though back in 2014 he had announced that interest rates had reached the lower bound.”

“All in all, Draghi was more explicit than we had expected. The door for more monetary stimulus is wide open and it does not necessarily have to be more QE. It could also be a lower deposit rate, maybe even fx interventions or purchases of other assets (previously excluded).”

“Draghi’s u-turn on the lower bound of interest rates has made him walk in the footsteps of former German Chancellor Adenauer who once said “why should I care about my chatter from yesterday”. So everything is possible. In our view, the main triggers for more action in December will be the ECB’s staff projections, particularly the headline and core inflation forecasts for 2017.”

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