Nick Kounis, head of financial markets research at ABN AMRO, notes that the account of the ECB’s June monetary policy meeting, which was pre-Sintra, suggested that the majority of the Governing Council stands firmly behind the President.
- “The account notes that ‘there was broad agreement that, in the light of the heightened uncertainty, which was likely to extend further into the future, the Governing Council needed to be ready and prepared to ease the monetary policy stance further by adjusting all of its instruments, as appropriate, to achieve its price stability objective.
- Potential measures to be considered included the possibility of further extending and strengthening the Governing Council’s forward guidance, resuming net asset purchases and decreasing policy rates’. There seemed to be particular concern about the inflation outlook. In particular, although inflation was projected to rise in coming years it ‘was still projected to reach only 1.6% in 2021, which was seen to remain some distance away from the Governing Council’s inflation aim’. Against this background it was important to prepare for ‘adverse contingencies’.
- At the July meeting we think the Governing Council will decide to change its forward guidance on policy rates to explicitly hint at the possibility of rate cuts. In particular, it could say it expects the key ECB interest rates ‘to remain at their present levels or lower …’.
- In September, we expect a 10bp cut in policy rates as well as a clear signal that the ECB is investigating the design of a new asset purchase programme. By December, we expect the ECB to announce a EUR 630bn QE package, to be implemented for 9 months from January 2020 at a pace of EUR 70bn per month. The second 10bp rate reduction will follow in Q1 of next year.”