ECB: Forecasts From Nine Major Banks

USD/TRY leap The European Central Bank (ECB) is scheduled to announce its monetary policy decision this Thursday at 11:45 GMT, which will be followed by the post-meeting press conference at 12:30 GMT. here are the expectations as forecast by the economists and researchers of nine major banks.

ING

“Updating the ECB’s own technical assumptions from mid-August with the new market reality would mechanically lead to another increase in the inflation projections for 2022 and 2023, by 0.1% to 0.2%, even if the increase in bond yield by some 30 basis points should have a dampening effect. We expect a discussion on the following topics: extending the Pandemic Emergency Purchase Programme (PEPP) beyond March 2022; how to avoid a cliff-edge effect and how much (if any) QE is needed in the post-pandemic era to bring inflation sustainably back to 2%? In our view, the easiest solution would be to gradually phase out the PEPP purchases starting January next year, potentially with a new third asset purchase programme to maintain the PEPP’s flexibility, allowing the ECB to continue buying Greek bonds. As much course-setting this week’s ECB meeting will be, we doubt that ECB president Christine Lagarde will share any important details of it. She will need all her energy to moderate what in our view looks like a widening rift between hawks and doves; of those ECB members favoring an exit from the emergency tools and those still being more afraid of medium-term inflation being too low rather than too high. Pushing the debate publicly in a certain direction would widen the rift rather than closing it. This is why, at Thursday’s press conference, less (communication) should be more.”

SocGen

“The ECB message should remain firmly on the dovish side, with the bank expecting high inflation to be only transitory. We expect the ECB will decide in December to end the PEPP in March next year, to raise the APP to EUR50 B per month as of April and to launch another TLTRO. It’s a very data-heavy week, and the figures should point to ‘growth-flation’ – a combination of solid growth and high inflation.”

ABN Amro

“The big question of course is whether the ECB will succeed in pouring cold water on market expectations for early policy rate hikes. This might prove very challenging at the November meeting as ECB President Lagarde will have little other than words to try and shift expectations.”

Westpac

“They will clearly articulate they have confidence in the recovery, but will also note they see little need to raise rates to end-2023 given inflation. The medium-term rates outlook for the ECB is at odds with both the US FOMC and UK’s BoE.”