Ahead of the December 2015 meeting, we used a simple method based on the ECB’s leaked models in the German press in order to guestimate the impact of QE on inflation, and thus the potential for additional easing based on the ECB’s own forecasts. We use the same framework to assess the potential macro impact […]
The ECB’s Governing Council delivered a comprehensive policy package that exceeded market expectations by a large margin. The 10bp deposit rate cut to -0.40% was expected but other measures were not, including a 5bp ‘refi’ rate cut (to 0%), a EUR20bn increase in the pace of monthly asset purchases (to EUR80bn), the inclusion of non-bank […]
This time is different – it’s no longer about oil At first glance it feels as though market participants have gone all the way back to three months ago, when they were expecting a big ECB package at the December meeting. In the end, the ECB’s announcement, including a 10bp deposit rate cut and a […]
Not only were today’s preliminary inflation figures for the euro area very weak, but the breakdown raised new concerns over the underlying trend in consumer prices – a potential headache for the ECB, independently of recent developments in the real economy and financial markets. According to Eurostat’s estimates, euro area HICP inflation fell to -0.19% […]
We continue to believe that the credit cycle has legs and we therefore maintain our forecast for the euro area GDP growth unchanged at 1.8% for 2016. Nevertheless, we also remain cautious. January bank credit flows came before the most severe episode of financial market stress, which could have an impact on banks’ balance sheets […]
We expect the ECB to cut the deposit rate to -0.50% by June, probably in two steps (by 10bp in March and by another 10bp in June), as part of its response to weaker inflation prospects and tighter financial conditions. That said, the adverse consequences of negative rates are becoming increasingly visible as foreign central […]
Recent chronology of events Since 2009 and up until recently, central bank action has helped to stabilise equity markets. Looking at recent events, it now seems that the opposite is becoming true. The last two monetary decisions (ECB on 3 December 2015 and BoJ on 29 January 2016) coincided with intermediary peaks in developed market […]
Although we have left our forecasts for euro area GDP unchanged – 1.8% growth expected in 2016, well above trend – downside risks have intensified in recent weeks. There are both good and bad reasons to worry about the recovery but, in short, the euro area can continue to do well despite sluggish global growth, […]
Draghi’s latest hint at fresh monetary easing heralds a six-week period of waiting and guessing what the next measures might look like. One critical factor driving the decision will be the ECB’s assessment of indirect effects of lower oil prices on inflation. Draghi promised “a more comprehensive picture” of those various transmission channels at the […]
The ECB left all policy settings unchanged at today’s meeting, as widely expected. At the same time, the overall tone of the press conference reflected yet another significant dovish shift in the ECB’s communication – one that the Governing Council agreed on unanimously – strengthening our view that fresh easing measures are likely to be […]
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