ECB Preview: Forecasts from 12 major banks, dovish tone amid Delta force
The European Central Bank is having a monetary policy meeting on Thursday, September 9 at 11:45 GMT, and as we get closer to the release time, here are the expectations as forecast by the economists and researchers of 12 major banks, regarding the upcoming announcement.
The ECB will likely start discussing tapering, but nobody expects a clear announcement on it.
Danske Bank
“With stable and benign financial market conditions, record low real rates and an economy that is recovering well in Q3 as well, the conditions are met to slow the PEPP purchase pace but ECB will not call this tapering. We expect ECB and president Lagarde to stress that the re-calibration is not be compared to tapering, but ECB responding to the changes in financing and economics conditions by aligning its PEPP volume. We expect PEPP purchases to be similar to the January/February level of EUR60 B/month, down from the current c. EUR80 B/month. That said, without an external shock to the economy we find it hard to argue for a higher PEPP volume in the current ECB growth and inflation narrative. We expect further discussions about de-linking the rates forward guidance and APP to play a role at upcoming meetings, but foresee no changes to the guidance yet. ECB will attempt to keep this meeting as uneventful as possible, yet the fall will be very interesting as hawks start to squawk more loudly than previous.”
Nordea
“The September meeting will be the time to debate what the appropriate pace of buying will be in the last quarter of the year. On the back of easier financing conditions and higher upside inflation risks, we expect the ECB to slow the pace and drop the reference to a significantly higher pace of buying. While a decision to slow down buying should come in a dovish package, President Lagarde is likely to focus also on the upside risks, and we see risks tilted towards a slightly hawkish interpretation as an immediate market response. The shorter-term growth and inflation forecasts will likely be revised upwards.”
ING
“Any changes to the communication and policy stance look unlikely. Nothing else matters – only the inflation outlook. If this outlook or the take on second-round effects changes, will the ECB significantly alter its course.”
Rabobank
“The economic outlook and financial conditions allow for a slowdown of PEPP in Q4. The ECB will emphasize that this is not the start of a taper or a signal that PEPP ends in March. However, we see a reduction as a key step towards keeping all options open in December. If PEPP is not slowed down this month, an extension beyond March and/or higher substitute APP purchases after PEPP become more likely in our view. Policy expectations. We expect the deposit rate unchanged at -0.50%, APP steady at EUR20 B/month and the PEPP envelope unchanged at EUR1,850 B. We expect the target pace of PEPP purchases to be slowed to EUR60 B/month for Q4. Decisions regarding the 2022 policy mix will probably be postponed until December.”
TDS
“We expect the ECB to announce a reduced pace of Q4 PEPP purchases at its September meeting on the back of easier financial conditions. All other policy levers are likely to be left on hold, with inflation forecasts revised up sharply this year and next.”
SocGen
“We expect the ECB to announce a gradual reduction in 4Q PEPP purchases while stressing that APP will continue at sufficiently high levels after the PEPP and highlighting the temporary nature of the currently high inflation. This will also give more time to assess incoming data in the autumn before deciding on when to end the PEPP, likely at the December meeting. A difficult discussion on transferring PEPP flexibility and what to do with the self-imposed limits should start already next week, but we expect no announcements.”
Nomura
“We expect the ECB to move from ‘a significantly higher pace’ in PEPP purchases to flexible purchases in Q4 2021. We think the ECB will slow its Q4 PEPP purchases, but only modestly, from EUR20 B per week to something closer to the average of net purchases conducted so far in 2021. While the ECB is likely to discuss the future of its asset purchase programmes (APP and PEPP) in September, we believe it is only likely to make a decision at the end of the year. When it comes to the ECB staff projections, we expect an upside revision of its 2021 and 2023 inflation forecasts in September. We think the ECB will acknowledge the recent upside surprises in euro area inflation but will dismiss any rise in inflation as temporary.”
ANZ Bank
“In Europe, the recovery is holding up well amid rising inflation pressures. We think the ECB will announce a gradual scaling back of bond purchases from Q4.”
BBH
“The ECB meets Thursday and no change is expected. The debate this week is likely to be contentious, as higher inflation prints have emboldened the ECB hawks to become more vocal. We think it would be bad optics to pare back the accelerated pace of purchases at the meeting right after the ECB just pledged to extend easy monetary policy under its new framework. The ECB meeting will be lively but we think the doves led by Lagarde remain in control. New macro forecasts will be unveiled at this meeting. Given the ongoing prolonged spike in inflation, we expect these forecasts could be nudged up modestly. However, that shouldn’t change the basic message under the new criteria that a hike is highly unlikely before 2024 and perhaps even 2025. 2024 will be added to the forecast horizon at the December 16 meeting and this will be another element of the new forward guidance. We think a strong euro is the last thing policymakers want or need right now and so Madame Lagarde may serve a little warning to the markets at her press conference.”
Deutsche Bank
“We are of the view that an announcement of slower purchases is slightly more likely at this meeting than in December. So it could be a taper week.”
BMO
“No changes to rates are expected (for a long, long, time) but there will be plenty of attention paid to the purchase pace… will it still be at a ‘significantly higher pace than during the first months of the year’ or will they finally slow it down a little? It is time to pull back the pace as all countries have reopened, travel has resumed and, although momentum has slowed, economies are growing again. Granted, a ‘slower’ pace may bring total purchases below the PEPP’s EUR1.85 trln envelope by the end of March but the ECB has always said that the full allotment doesn’t have to be used. Besides, the Governing Council will reiterate that it is flexible and is prepared to act if needed. The purchase pace can always be ramped up again. Plus, there is still plenty of support to ensure financial conditions remain accommodative: the PEPP will continue until at least the end of March, there is still the EUR20 B/month of buying from the Asset Purchase Plan, and there is the EU Recovery Fund.”
ABN Amro
“We judge that an announcement about whether the PEPP will end in March 2022 and the shape of the APP going forward will likely wait until the December meeting. We expect the ECB to signal a slower pace of purchases in Q4 compared to Q2 and Q3. It could do this by signalling it will target purchases at levels that are consistent with those seen in the first months of the year, or perhaps just dropping the ‘significantly’ from its current guidance. At the same time, the ECB is likely to emphasise that the PEPP is still running and that it maintains the full flexibility to change the pace and/or size going forward. The central bank’s forecast for GDP growth and inflation in 2021 will probably be revised higher.”