ECB is changing its narrative - Rabobank

Draghi sparked a veritable mini-taper tantrum last Tuesday, when his speech at the annual ECB Forum on Central Banking was interpreted as relatively hawkish and analysts at Rabobank suggest that it may be an indication that ECB is changing its narrative.

Key quotes

“Specifically markets honed in on a paragraph that suggested the Governing Council may need to reconsider its policy stance as economic growth picks up, which was interpreted as a significant hawkish shift.”

“ECB sources later responded that the market overly focused on this phrase, and that Draghi’s speech was intended to be more balanced – pointing at the fact that Draghi also voiced the need for persistence of current policy and prudence when ultimately adjusting the monetary stance.”

“On balance, we believe Draghi’s speech wasn’t an immediate change of heart, but it does again illustrate our view that the ECB is changing its narrative. The ECB is shifting the focus of its communications on the increased confidence in the economic recovery – reducing downside risks to the inflation outlook. This, then, could be used by the Governing Council to support a decision to end its asset purchases even if inflation isn’t quite there yet by the end of the year.”