Coming up Thursday - European Central Bank monetary policy meeting minutes
A preview of the ECB minutes (July meeting) due at 1130GMT on Thursday 17 August 2017
Bank of America / Merrill Lynch:
- With market attention focusing on Draghi's participation to Jackson Hole on 25/26 August, while ECB speakers are silent in this holiday season, the publication of the minutes of the Governing Council July meeting on Thursday 17 August is likely to draw quite some attention.
- Those minutes - or "accounts" - are in our view often used by the central bank not so much as a "verbatim" of the deliberations but much more as a tool to fine-tune communication in between two meetings.
- Draghi's very guarded comments on the exchange rate appreciation in July had been met with surprise at the time ... and the ECB has an occasion there to say more than "the re-pricing of the exchange rate has received some attention". We think the minutes could get into this in two non-exclusive ways: first, in the opening statement by the ECB's chief economist, insisting on - and possibly quantifying - the impact of the stronger euro on the inflation outlook; second, in the general discussion, with voices highlighting the recent tightening in monetary conditions.
- Still, we would not be surprised if some members were not quoted as expressing "benign neglect", seeing the euro appreciation merely as the signal of stronger confidence in the region, with little sinister side effects.
- The timeline for the decision on the quantum of QE after Dec-17 will also be another area of interest. Draghi explicitly said the council wanted to "deliberately keep options open", but a discussion of the pros and cons of September versus October could shed some light on the council's state of mind, especially if - beyond what was said exactly last month - the Euroystem wants to send a message ahead of Jackson Hole.
- We are not holding our breath, though. Our call remains unchanged: we expect the ECB to announce a policy decision on the quantum of QE in October -specifically, we expect monthly purchases to be cut from EUR 60bn at the moment to EUR 40bn for six months starting in January 2018, and more regular taper to zero in 2H18.
- As we had expected, the ECB did not make any change to rates, QE and forward guidance in the July meeting. No indication was given on when a decision will be made on the future of QE after December, other than it will be in the autumn ...
- ECB head Mario Draghi did not give much of a flavour of the discussion that took place within the Governing Council, other than the decision not to change forward guidance was unanimous. He also said that the future of asset purchases after December was not discussed, and that a decision will be taken in the autumn.
- With regards to inflation, Mr Draghi reaffirmed that there is "no convincing sign of a pick-up in underlying inflation" in the eurozone and that "inflation is not where we want it to be", backtracking slightly from the statement he made at the end of June in Sintra - which caused some market concerns about a possible early tapering of QE - in which he mentioned that "deflationary forces had been replaced by reflationary ones".
- The minutes should give us more of a flavour of the discussion that took place within the Governing Council, including whether some members were concerned about the implications of the recent euro appreciation for growth, inflation, and the monetary policy outlook.
Dr. D in da house