ECB Removes Dovish Slant On QE From Statement

Ok, here comes the ECB.

If you need a refresher on this, we previewed it in our week-ahead outlook on Sunday, but suffice to say it looks like they may tweak the outlook for APP in an effort to start laying the groundwork for calling an end to QE in September. Of course depending on the conditions they could taper a little further and let purchases run through the end of the year. Whatever the case, there won’t be a rate hike until monthly purchases are wound down, so they need to start telegraphing that wind down at some point.

As far as the updated forecasts go, Bloomberg apparently already knows what they’re going to show. “The European Central Bank’s new forecasts will show growth and inflation similar to the picture of solid economic momentum seen three months ago,” a story out overnight reads. That according to “euro-area officials familiar with the matter.”

“The prediction for 2018’s expansion has been raised by 0.2 percentage point,” Bloomberg adds, just to show you how specific their sources were. The slightly more upbeat take on growth is said to be down to “rounding”. That same “rounding” will see “a slightly more pessimistic view of inflation next year.”

So that will need be confirmed in the presser and it certainly seems as though that’s an effort to soften the blow from a removal of the dovish slant on the APP guidance (i.e. the explicit reference to increasing purchases). Downplay that with an unchanged outlook for growth and a just-barely-more-dovish take on inflation.

Sure enough, they pulled the dovish slant on APP. Here’s the statement:

At today’s meeting the Governing Council of the ECB decided that the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will remain unchanged at 0.00%, 0.25% and -0.40% respectively. The Governing Council expects the key ECB interest rates to remain at their present levels for an extended period of time, and well past the horizon of the net asset purchases.

Regarding non-standard monetary policy measures, the Governing Council confirms that the net asset purchases, at the current monthly pace of €30 billion, are intended to run until the end of September 2018, or beyond, if necessary, and in any case until the Governing Council sees a sustained adjustment in the path of inflation consistent with its inflation aim. The Eurosystem will reinvest the principal payments from maturing securities purchased under the asset purchase programme for an extended period of time after the end of its net asset purchases, and in any case for as long as necessary. This will contribute both to favourable liquidity conditions and to an appropriate monetary policy stance.

And here’s the January statement for comparison (strikethrough to show what was nixed):

At today’s meeting the Governing Council of the ECB decided that the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will remain unchanged at 0.00%, 0.25% and -0.40% respectively. The Governing Council expects the key ECB interest rates to remain at their present levels for an extended period of time, and well past the horizon of the net asset purchases.

Regarding non-standard monetary policy measures, the Governing Council confirms that the net asset purchases, at the new monthly pace of €30 billion, are intended to run until the end of September 2018, or beyond, if necessary, and in any case until the Governing Council sees a sustained adjustment in the path of inflation consistent with its inflation aim. If the outlook becomes less favourable, or if financial conditions become inconsistent with further progress towards a sustained adjustment in the path of inflation, the Governing Council stands ready to increase the asset purchase programme (APP) in terms of size and/or duration. The Eurosystem will reinvest the principal payments from maturing securities purchased under the APP for an extended period of time after the end of its net asset purchases, and in any case for as long as necessary. This will contribute both to favourable liquidity conditions and to an appropriate monetary policy stance.

Red line version: