ECB: All eyes are on the Governing Council – Rabobank

With only a few months left before the ECB’s asset purchases are currently scheduled to end, all eyes are on the Governing Council’s discussion around the future of the programme, according to analysts at Rabobank.

Key Quotes

“The Council can certainly claim some victories, such as the disappearance of deflation risk and the strong economic growth. Yet inflation is still not where the ECB would like it to be, and the recent “sustainable” and “durable” criteria of inflation are still some way from being met.”

“Over the past year, the Council has gradually changed its narrative to focus more on these positives. More importantly, we are also seeing some issues with the future availability of assets to purchase without the Council making some contentious changes to the purchase programme. We therefore expect that the ECB will gradually retire its asset purchases from January onwards.”

“While the market consensus has slowly shifted to an October announcement, we believe that Draghi will put markets on notice in today’s meeting already. Today’s policy decision comes with a new set of staff projections, which could help justify any announcement. That said, we do not expect the Council to have worked out all details yet, so we expect today’s meeting to contain clear hints (i.e. a pre-announcement) that an adjustment to the asset purchases is being discussed, with the actual details to follow in December.”

“Additionally, the ECB is faced with the challenge of changing its forward guidance, which is currently tightly linked to the asset purchases. In order to allow the ECB to taper its purchases whilst still communicating an easing bias to markets, we believe that the Council will restructure its forward guidance – either by broadening it beyond the asset purchases, or by tying it explicitly to its interest rates policy.”

“Clearly, with market participants having been increasingly dovish in recent weeks, there is a risk of surprise here, but we would argue that trying not to surprise the market today only raises the ECB’s challenges for October.”