Higher inflation and slowing growth. No new announcement before December.

26 October 2021

This content is for professional investors only as defined by the MiFID.

The European Central Bank (ECB) will hold its press conference on October 28. The Governing Council is expected to maintain an accommodative tone to preserve easy financing conditions and to push back on early lift-off (hike) expectations.

Please find below what we expect:

  • The ECB will confirm the levels of key interest rates, its forward guidance, the pace of its pandemic emergency purchase programme (PEPP), its purchases under the asset purchase programme (APP), reinvestment policies and longer-term refinancing operations.
  • President Lagarde will insist on forward guidance, which was strengthened last July, before alluding to the first rate hike in the Eurozone which should be far away. 
  • While risks remain tilted to the upside, she will also reaffirm that the surge in inflation, driven by shocks in supply chains, namely food and energy, is temporary and that the current spike in inflation should fade in the medium term. Nevertheless, the ECB will continue to monitor very closely second-round effects (wage inflation).

We do not expect a lot of information concerning its policy post December 2021, i.e., what degree of asset purchasing flexibility the ECB will retain post-PEPP in the APP or targeted longer-term refinancing operations (TLTRO).

All in all, this ECB meeting is expected to be uneventful. In December on the other hand, we should have an update of their macro-economic projections (with fresh projections for 2024). 

We believe dovish communication on forward guidance could push front-end interest rates lower.

Disclaimer
This commentary is intended for non-professional investors within the meaning of MiFID II. It is provided for informational and educational purposes only and is not intended to serve as a forecast, research product or investment advice and should not be construed as such. It may not constitute investment advice or an offer, invitation or recommendation to invest in particular investments or to adopt any investment strategy. Past performance is not indicative of future performance. The opinions expressed by La Française Group are based on current market conditions and are subject to change without notice. These opinions may differ from those of other investment professionals. Published by La Française AM Finance Services, head office located at 128 boulevard Raspail, 75006 Paris, France, a company regulated by the Autorité de Contrôle Prudentiel as an investment services provider, no. 18673 X, a subsidiary of La Française. La Française Asset Management was approved by the AMF under no. GP97076 on 1 July 1997.
 

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