Investment Clock insights

ECB gearing up for an ease


Melanie Baker

26 July 2019

While, as expected, not adjusting rates or restarting QE yesterday, Draghi’s message was downbeat on the economy and his message on policy was dovish.  There were dovish tweaks to the ECB’s forward guidance, and preparations are being stepped up for a potential further ease. 
Draghi said that a rate cut was not discussed as a policy action yesterday. However, according to Draghi, that was partly because they wanted to see the new set of economic projections before taking action and partly because of the sense that “all this is pretty complex and needs preparation”.   It isn’t completely clear how far the rest of the Council are on board with easing policy further and there was a contrast, for example,  between the tone of the published statements and Draghi’s commentary. Nevertheless, there was plenty here – statement, opening statement and Q&A -  to suggest that the ECB won’t stand still, especially when looked at against the backdrop of recent data disappointments (e.g. PMIs, Ifo) and a likely Fed rate cut next week.  Further easing seem likely to follow in September, likely including a 10bp rate cut, with some form of additional QE no surprise either.

While, as expected, not adjusting rates or restarting QE yesterday, Draghi’s message was downbeat on the economy and his message on policy was dovish.  There were dovish tweaks to the ECB’s forward guidance, and preparations are being stepped up for a potential further ease. 

Draghi said that a rate cut was not discussed as a policy action yesterday. However, according to Draghi, that was partly because they wanted to see the new set of economic projections before taking action and partly because of the sense that “all this is pretty complex and needs preparation”.   It isn’t completely clear how far the rest of the Council are on board with easing policy further and there was a contrast, for example,  between the tone of the published statements and Draghi’s commentary. Nevertheless, there was plenty here – statement, opening statement and Q&A -  to suggest that the ECB won’t stand still, especially when looked at against the backdrop of recent data disappointments (e.g. PMIs, Ifo) and a likely Fed rate cut next week.  Further easing seem likely to follow in September, likely including a 10bp rate cut, whilst some form of additional QE would be no surprise either.

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