UBS have changed their European Central Bank forecast and new expect a rate hike in September ….. 2020!
- UBS had been projecting the first ECB hike in March 2020.
Anyway, for this week. This is very brief. The main points:
- New macro forecasts
- TLTRO-III details
- potential change in the ECB's interest rate forward guidance
New staff macroeconomic projections:
leave its 2019 GDP growth forecast unchanged at 1.1%
- cut 2020 by a marginal 0.1pp to 1.5%
- and keep 2021 at 1.5%
inflation .. ECB will lift its 2019 forecast by 0.1pp to 1.3%
- leave 2020/2021 unchanged at 1.5%/1.6%
- core inflation forecasts unchanged at 1.2%/1.4%/1.6% for 2019-21.
Details on TLTRO-III
- Based on what we already know, TLTRO-III does not look that attractive for banks, but we would not rule out that possibility that the ECB might try to sweeten the offer
Will the ECB change its forward guidance or wait until September/December?
- The worrying fall in market-based inflation expectations and an attempt to tie the hands of a new hawkish ECB President could potentially be reasons for the Governing Council to change the interest rate forward guidance this week - for example, by guiding that rates will stay on hold at least until mid-2020. This is not our base-case scenario, but if you wonder how the ECB might surprise us, this is something to consider.
