The ECB meeting on July 25th was interesting.
Please find below the main points:
- No move on deposit rates, in line with our expectations. Still, slightly hawkish stance considering previous market pricing.
- The ECB mentioned in the statement that:
- The key ECB interest rates will remain at their present or lower. The change of the forward guidance was widely expected.
- They changed their inflation target, talking about the symmetry in the inflation aim. Even if it may not have a significant impact over the short-term, this is an important modification, and a very accommodative one.
- They were examining options such as a tiering mechanism and new net asset purchases. Again, this is very dovish.
- It seems that a consensual decision might be difficult to reach in September; Mr. Draghi failed to prove that he had the full support of the Governing council.
The overall tone is very dovish, and more dovish than we anticipated (taking about symmetry in inflation, mentioning QE in the statement), but no precise information was given. The September meeting will be a very important one with potentially a rate cut (with a tiering mechanism) and a formal announcement of a new purchase program.
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