ECB: What to expect after April? - HSBC

According to the analysis team at HSBC, before there can be a rise in interest rates, the ECB must change its forward guidance and even June 2017 seems too early to HSBC.

Key Quotes

“By June, we forecast inflation will again be 1.5% and falling. To prevent speculation of rate rises, we think the ECB will wait until Q4 before adjusting its forward guidance, dropping "extended period of time" from the forward guidance on rates.”

“As for the asset purchases, we still expect the ECB to maintain the current pace (EUR60bn per month) until the end of this year. We then think the ECB will extend its asset purchases for another three months at a reduced purchase rate of EUR40bn when the current purchase programme expires in December. We anticipate this announcement at its September meeting (or at the latest in October, after the German election on 24 September). In early 2018, inflation should be low due to the base effects from energy, prompting the ECB to announce another three-month extension at EUR40bn per month. After that, we expect one final extension, at the reduced rate of EUR20bn per month for another three months. By Q4 2018, we think the ECB will no longer be buying assets other than to reinvest the proceeds of maturing assets.” 

“To soften the blow for the periphery, the ECB could phase out the corporate sector purchase programme (CSPP) before reducing purchases of public bonds. Or it could announce a "flexible" exit from the capital key, such as ceasing to buy bonds from some countries once technical constraints to purchases bite. This flexibility has already been hinted at in the minutes of the January 2017 ECB meeting, with Council members stressing the trade-off between buying bonds below the marginal deposit rate, and buying according to the capital key.”