ECB to announce measures to prolong its asset purchase program - Scotiabank

Frédéric Prêtet, Research Analyst at Scotiabank, expects the European Central Bank (ECB) to announce measures to prolong its asset purchase program of €80bn per month for at least 6 months beyond its current end date of March 2017.

Key Quotes

“This decision will be taken despite the fact that, for the first time in many quarters, the Eurozone growth scenario could be slightly revised up in the ECB staff’s December macroeconomic projections report. Indeed, the lack of any clear improvement in core inflation and the risk of a premature retightening in financial conditions following the recent rise in interest rates would, in our view, be strong arguments behind this decision.”

“Growth: Despite the adverse impact of higher interest rates and higher oil prices on households’ purchasing power, signs of strengthening global demand as seen by the sharp rise in the global PMI manufacturing index and the positive impact of a weaker EUR suggest that Eurozone real GDP growth could be upwardly revised to around 1.7% y/y over the medium term.”

“Inflation: Higher oil prices also strengthen the case for stronger-than-expected Eurozone inflation next year. Beyond this, however, weak developments in core inflation could force the ECB to remain cautious. As is traditionally the case, the ECB will nonetheless deliver or communicate an inflation forecast that moves back towards the ECB’s price target of “below but close to 2.0%” over a 2–3 year horizon.”