ECB to remain on hold in September - Danske

Analysts from Danske Bank changed their view and now expect that the European Central Bank (ECB) to remain on hold at the September meeting.

Key Quotes:

“We have changed our view and now expect the ECB to remain on hold at the meeting in September. We believe that in the ECB’s view the incoming information since July does not warrant additional easing. We still firmly believe the ECB will eventually extend QE purchases beyond March 2017 due to the lack of a sustainable path in inflation. However, for now, we expect it to keep its powder dry. A QE extension could be accompanied by changes to the purchase restrictions but we do not expect this to be announced in September.”

“Previously, we also expected a temporary step-up in QE purchases as we looked for a weakening in economic data. However, due to the surprisingly resilient economic sentiment despite the UK’s decision to leave the EU, we find it likely that the ECB will maintain the current pace of monthly purchases at EUR80bn.”

“In terms of rate cuts, we stick to our view that the ECB will not cut rates further. Back in March, the ECB stepped out of the currency war and instead focused on the bank lending channel, which is crucial in the transmission of monetary policy in the euro area.”