ECB: Looser for longer - Nomura

Analysts at Nomura suggest that the ECB’s announcement today that it will stop its asset purchases in December was more hawkish than they anticipated, but some strengthening of the forward guidance concerning interest rates was a very important offset.

Key Quotes

“The ECB’s heightened confidence that it should end the APP - a de facto tightening of monetary conditions - can in part then be traced to its strengthened forward guidance on rates - a de-facto easing of policy. Combined with a heavy emphasis on its reinvestment policy, we think the overall stance of monetary policy will remain exceptionally loose in the coming months.”

“As for the specifics of those forecasts, a downward revision to the GDP forecast for 2018 was not a surprise; indeed, Draghi was very keen during the press conference to downplay this.”

“On inflation, upward revisions to the headline HICP forecasts for 2018 and 2019 were more aggressive than we expected, but nevertheless largely written off as being a function of higher oil prices. Importantly, the inflation forecast for 2020 was left unchanged (as we expected).”

“We retain our view that the ECB will start lifting its policy rates in September 2019, which is consistent with the ECB’s new forward guidance.”

“Where we have less confidence, by definition given the time horizon that’s involved, concerns the longer-term outlook for interest rates and after the ECB has begun a tightening cycle.”