European Central Bank Meeting: Forecasts From 5 Major Banks

The European Central Bank is expected to leave its PEPP unchanged at a total of EUR1.85 trillion. The ECB releases its decision at 11:45 GMT while ECB President Christine Lagarde begins her press conference at 12:30 GMT.

Danske Bank

“The ECB meeting will focus on the financing conditions, PEPP implementation and cautiously optimistic view on demand amid weak CPI outlook. ECB is expected to raise its growth projections by 0.3pp for this year and next year. We expect ECB’s PEPP purchase guidance to shift from ‘significantly’ to ‘moderately’ higher than at the start of the year, i.e. we expect PEPP buying to be EUR70 bn/month in Q3 versus the current net purchase pace of EUR80 bn/month. We do not expect the meeting will alter our tactical nor strategic view on the rates (range trading & spread compression) outlook or FX (strategically stronger USD).”

Rabobank

“The summer lull provides the ECB with an argument to reverse the March increase. It would be in line with the traditional summer slowdown in APP purchases as well. The Council will go to lengths to stress that this is a technical adjustment, that the PEPP continues to be dictated by financial conditions and that this is not the start of tapering. A likely upgrade of the near-term outlook may cause the market to interpret this as hawkish, so we expect the ECB to stress that the medium-term inflation goal is still far from reached. We expect the deposit rate unchanged at -0.50%, APP steady at EUR 20bn/month and the PEPP envelope unchanged at EUR1,850 bn. We expect a ‘technical adjustment’ to the PEPP pace, with a ‘slightly lower’ pace through Q3, but we acknowledge the risks are skewed towards a delay of any such slowdown. By end-2021, the ECB will probably announce a shift in focus from PEPP into APP and other ‘more standard’ unconventional tools.”

TDS

“We look for the ECB to maintain the language in the press release that PEPP purchases will continue ‘at a significantly higher pace than during the first months of the year.’ However, we think that purchases will ultimately be reduced in Q3 due to seasonal/liquidity issues, rather than the macro outlook or financing conditions. Like other central banks, the ECB will view the near-term pick-up in inflation as transitory, with no impact on its longer-term inflation forecasts. All else equal, our base case for a moderately dovish outcome suggests some downside risks for EUR/USD this month.”

Deutsche Bank

“We expect the ECB to maintain the faster pace of PEPP purchases for the time being. However, they expect that after June the market focus will be on PEPP exit, as it is a pandemic policy and we expect exit to be confirmed in September or December.”

Citibank

“We expect the Governing Council will choose to maintain its current pace of purchases under PEPP at a net amount of approximately EUR80 bn per month, and avoid conveying any specific message on what happens afterwards, either before or after March 2022 (the end-date of PEPP by default).”