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Scenarios for QExit

The European Central Bank (ECB) is expected to announce the bulk of its decisions on quantitative easing (QE) at its 26 October meeting. We would expect a broad commitment to extend QE beyond 2017 at a reduced pace, but several options are possible and additional technical details could be postponed to the 14 December meeting. […]

Euro area wage growth suggests the Phillips curve is not dead

Wage growth is an important input in the ECB’s reaction function, and so far it has failed to respond to the narrowing of the output gap. It could be the normal behaviour of a lagging indicator, especially as labour market slack is likely to be larger than what the drop in headline unemployment would suggest. […]

ECB, a forced taper

With the economic recovery in the euro area looking increasingly robust and broadbased, the ECB appears set to embark on a policy normalisation path, gradually phasing out of negative interest rate policy (NIRP) and quantitative easing. The ECB’s new narrative implies that the era of crisis-fighting unconventional monetary measures is over, as deflation risks have […]

ECB hints at October decision on QE

The ECB left its assessment and communication broadly unchanged at its meeting on 7 September. Draghi confirmed that “the bulk of the decisions” on QE extension should be made at the 26 October meeting. The statement mentioned recent currency volatility as “a source of uncertainty” to be monitored in the future, and the staff projections […]

Slow-motion exit from QE

The ECB will likely prepare for a cautious, flexible, slow-motion exit at its Governing Council meeting on 7 September, tasking its committees to study all policy options for 2018. We continue to expect an announcement in October that quantitative easing (QE) will be extended for six months, but at a reduced pace of EUR40bn per […]

Upward momentum in euro area inflation is building

Euro area flash HICP inflation rose to 1.5% y-o-y in August from 1.3% in July, while core inflation remained stable at 1.2% year on year. In our opinion, modest upward price momentum has started to build over the past few months, with core inflation likely to edge slightly higher from here. Euro area core inflation […]

The ECB and the euro, from Amsterdam to Sintra

The trade-weighted EUR has appreciated by 4.8% since the ECB’s June meeting. ECB models and Mario Draghi’s rule of thumb suggest that a stronger currency could lower euro area inflation by about 30-40bp in 2018-2019, all else being equal. But all else is not equal, and the euro area economy is in a very different […]

Rebound in euro area core inflation

Euro area ‘flash’ HICP inflation eased to 1.3% y-o-y in June (down from 1.4% in May) while core inflation increased to 1.1% (up from 0.9% in May). Both figures were slightly above consensus expectations, but our overall assessment is unchanged. The bottom line from the June inflation report is that the broad picture remains unchanged […]

ECB: first (hawkish) move since 2011

  As we expected, the ECB moved to a more neutral stance today by describing the risks to economic activity as “broadly balanced” and by removing its bias to even “lower” policy rates. The symbolic significance of the move should not be underestimated. It is the first time that the balance of risks to growth […]

Core inflation clouds ECB’s next move

Euro area ‘flash’ HICP inflation came in at 1.4% y-o-y in May (down from 1.9% in April) while core inflation eased to 0.94% (down from 1.2%), both slightly below consensus expectations, as energy-related base effects and Easter distortions faded. We forecast euro area inflation to remain relatively stable in the next few months before core […]

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