ECB to signal risks tilted to the downside – ABN AMRO

Analysts at ABN AMRO do not expect the ECB to change its forward guidance on monetary policy following today’s Governing Council meeting.

Key Quotes

“We do think that – on balance – it will finally shift its view of the risks to the economic outlook. In particular, we expect the Governing Council to communicate that risks to the economic outlook our now tilted to the downside.”

“Since last meeting, the near term economic growth picture seems to have deteriorated.”

“Our base case is that the ECB will raise its deposit rate by 10bp in December of next year, taking it to -0.3%. The risks are skewed towards later. We think that core inflation will undershoot ECB forecasts against the background of slack in the eurozone labour market as a whole and relatively moderate economic growth. In addition, the risks to the economic outlook are to the downside.”

“Finally, by the end of next year, Fed rate hikes will be behind us and US economic growth will be slowing. The ECB may then be in a position to deal with significant euro strength if it were to move too quickly. We therefore think financial markets are too aggressive in their current pricing.”