ECB meeting due on Thursday - preview

Author: Eamonn Sheridan | Category: Central Banks

The European Central Bank monetary policy meeting for September 2018 is only one sleep away! 

Mmmm, actually it probably not going to be that exciting
I posted a preview here earlier:
and here:
This now is via Barclays:
  • we do not expect any changes to the current monetary policy stance or any critical updates to the staff macroeconomic forecasts
Righto then, thanks

 …. oh, you want more? ;-)

Back to Barclays:
On the policy front, at the June meeting the ECB announced the end of net asset purchases starting in January 2019 and provided forward guidance on policy rates by signalling no hikes "at least through the summer" of 2019. Following the announcement, we adjusted our baseline scenario for the ECB and expect the first DFR hike of 15bp in September 2019 followed by a second one of +25bp both in the DFR and the MRO in March 2020. Following the announcement, markets pushed out the pricing for the first 10bp rate hike from June to October 2019. 
  • All the ECB communications since the June meeting, including at the ECB July meeting, have delivered a message consistent with that of the June announcement and have also signalled that the governing council is pleased with the market move and pricing. In sum, no change in the message or the tone is the most likely outcome for the September meeting next week. 
Our baseline is for no change in the staff macroeconomic forecast; however, we think that there is a possibility that the ECB June forecast for GDP growth of 2.1% for 2018 will be revised down slightly. 
  • That said, at this point there should be no fundamental reason to make any changes to the 2019 and 2020 forecasts. As for inflation, we do not rule out minor (+/- 0.1pp) adjustments to the headline inflation on the basis of an update of volatile components, such as energy, food or the currency. 
  • Our forecasts, however, differ considerably on core inflation: the ECB forecasts core inflation of 1.6% in 2019, we instead expect 1.2%. We believe that considerable labour market slack persists in Italy and Spain, and to a lesser extent in France, as well as insufficient wage acceleration in Germany (Q2 labour cost released this week decelerated to 0.2% q/q from a revised down 0.9% in Q1 or to 2.0% y/y from 2.4% before). We expect moderate, albeit improving, wage growth dynamics. Consequently, we would expect the ECB to eventually mark down its 2019 core inflation forecast, even if it does not so at next week's meeting.

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