During its September 9 press conference, the European Central Bank (ECB) is expected to address two major topics: new macro-economic projections and an update on the pandemic emergency purchase program (PEPP).
On the economic front, we expect the ECB to maintain an optimistic tone given the progress on the European vaccination campaign, despite slowdowns in China and the USA. But the central bank will emphasize that uncertainties related to COVID-19 remain. We expect new macro-economic projections to show improved growth in 2021 (4.8% vs 4.6% in June) and higher inflation across the board but especially in 2021 (2.2% vs 1.9% in June).
We expect the ECB to reduce the pace of the PEPP (from €80bn to €70bn a month) consistent with the improving economic outlook and its will to consume the PEPP envelop in full. We do not expect the Governing Council to make any announcement concerning the future of the pandemic emergency and the asset purchase programs following the PEPP’s expected end in March 2022. In our opinion, the ECB will maintain very proactive and accommodative communication on their future monetary support.
Recent positive inflation surprises, even if temporary (yet to be confirmed), put some pressure on the ECB. Communicating about a reduction in the pace of the current Quantitative Easing program while keeping a very accommodative tone will not be an easy task for ECB President Lagarde, especially with a higher growth forecast.
We expect some volatility following this press conference, with moderately higher rates.
Disclaimer
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