ECB: Auto pilot with a slight dovish bias – ING

Carsten Brzeski, Chief Economist at ING, points out that the ECB president Mario Draghi just confirmed the bank’s determination to end quantitative easing, but opened the door for a long period of low interest rates.

Key Quotes

“He confirmed the ECB’s previous take, arguing in favour of a soft patch and pointing to several one-off factors. At the same time, however, Draghi stressed that some temporary factors could become long-lasting, ie trade tensions and external uncertainty. In sum, Draghi is still betting on domestic demand, the strong labour market and investment, to support the eurozone recovery in the coming months.”

“Turning to inflation, Draghi pointed to satisfying wage growth but emphasised that the pass-through from higher wages to higher inflation was still hardly visible and that uncertainties surrounding the medium-term outlook had increased.”

“Against all of the above, Draghi slightly changed the well-known ECB communication. While there is still a strong determination to end the net-QE purchases by the end of the year, Draghi opened the door for changes to the forward guidance in the course of 2019.”

“It is too early to read any real changes in the ECB’s anticipated path for monetary policy beyond the end of the net-QE purchases. However, Draghi at least just sent a clear signal of the ECB’s willingness to err on the side of caution when it comes to the first rate hike.”