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