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ECBmøde: Vil pengepolitikken blive strammet hurtigere?

Morten W. Langer

mandag 22. januar 2018 kl. 15:24

Fra BNP Paribas:

The European Central Bank’s communication on future monetary policy has been uneven recently, but we think the direction of travel is clear and consistent with data evelopments.

 The next step of the exit strategy is likely to be a change in the forward guidance on QE and rates in order to allow the ECB to end net asset purchases later this year.

 Such a change would be premature on Thursday, in our view, not least after the FX reaction to the December meeting account. This press conference is more likely to be a balancing act.

 Mario Draghi is likely to give more colour on the ECB’s intentions, while balancing any
potentially hawkish notes with caution on inflation and a focus on a gradual exit approach.

 We continue to expect a shift in forward guidance in March, a short tapering over Q4 for an end to net asset purchases in December and the first depo-rate hike in June 2019.
The account of the ECB’s December meeting revived the debate on the next steps the central bank would take in its exit strategy, following the decision to cut the size of its asset purchases to EUR 30bn from January this year.

In particular, the mention in the account that “[t]he language pertaining to various dimensions of the monetary policy stance and forward guidance could be revisited early in the coming year” has fuelled speculation over an imminent change in the ECB’s forward guidance on QE and rates – perhaps as early the January meeting. This reference marked a clear shift from the steady hand adopted by Mario Draghi at December’s press conference and suggested that the Governing Council’s debate on monetary policy had advanced further than the ECB president might have given away on that occasion.

We believe two aspects underlie this apparent volatility in communication. Both are likely to continue to affect the ECB communication over the next weeks and months, but we would not overstate either of them.

 The first is the tension between the need for transparent communication of its intentions and the desire to limit excessive market reactions. This tension was evident in the account:
“Signals that could trigger an unwarranted tightening of financial conditions needed to be
avoided, as they could jeopardise progress towards the Governing Council’s inflation aim”.
In this respect, Mr Draghi might have erred slightly too far on the side of caution in December to avoid rocking the boat.

However, the ECB is no stranger to orchestrating market expectations and we are confident that none of the decisions likely to be made over the next few months will come as a major surprise to the market by the time they are announced.

 The second is some divergence of opinion within the Governing Council over the best course of action. Since the October meeting, a number of members have expressed reservations on the decision to leave the QE programme open-ended; some have expressed a clear preference for it to stop sooner rather than later. Interestingly, the divisions go beyond the classic demarcation line between doves and hawks.

In our view, though, this divergence concerns only relatively marginal aspects of the ECB monetary policy stance, such as the exact timing of the end of the purchases. There seems to be wide agreement on the essence of the story, however:
– Monetary policy will have to remain accommodative for a prolonged period.
– The exit process will be very gradual.
– While the ECB is not driven by the markets, it does not intend to shock them either.

Within this framework, the direction of monetary policy and the intensity and speed of the adjustment will ultimately depend on one thing only: data evolution. On this front, despite persistently low inflation – we think the December core reading disappointed not just us but also the ECB – newsflow has remained encouraging of late and continues to bolster the picture of robust, widespread above-potential growth Mr Draghi painted in December.

What is the ECB likely to do on Thursday?
While the reference to “early in the coming year” in December’s meeting accounts potentially includes January, we think significant changes to the language and the forward guidance on monetary policy on 25 January would be premature, on a number of grounds.

 The market reacted strongly to the December account, emphasising the risk of an unwanted tightening in monetary conditions, in particular through the currency. The January meeting might provide the ideal stage for Mr Draghi to throw some light on the debate underway in the Governing Council in order to test the water before the changes are announced later in the year, on which more below.

 Core inflation disappointed again in December. At 0.9% y/y, it stayed below the 1% mark for the third month running. While this does not change the overall picture, it should have raised some eyebrows in Frankfurt and might support a cautious attitude.

 In March, the ECB will present its new staff projections – a good opportunity to gauge the central bank’s confidence in its ability to achieve its inflation aim. In addition, the new forward guidance might more expressly link the progress of inflation towards its target with the path of interest rates. In this case, the projections would have an even stronger weight. We think the ECB will want to wait for the new set of numbers.

 Last but not least, there is no rush. A decision on the future of QE will need to be taken in June at the earliest. This gives the ECB plenty of time to modify its forward guidance.
The January press conference will very likely be a balancing act. Mr Draghi will probably
provide a bit more colour on the ECB’s intentions regarding possible changes in language.

This would be a step forward compared with December, when he refused to be dragged into any debate about the future of monetary policy. Mr Draghi is, however, likely to balance such comments with a few reminders: any step towards the exit is conditional on inflation progress towards the ECB’s mandate; the exit process will, in any case, be very gradual; and monetary conditions will remain very accommodative for a prolonged period.

We expect a similar balancing exercise when it comes to the macro outlook. The risk assessment is one potential area for subtly hawkish tweaks. The account to the Decembermeeting revealed that while risks were still balanced overall, the ECB perceived that some of the downside risks had receded. This could be more clearly reflected at Thursday’s press conference, conveying the sense that, in line with the data, the ECB’s thinking is also evolving.

The lack of progress on the inflation front should be a counterbalancing factor, however. Given high uncertainty on the reliability of the relationship between growth, slack and inflation, Mr Draghi will most likely renew his call for prudence and patience.

The currency is likely to come up again in the Q&A session. Our best guess is that the ECB president will, as usual, highlight that the external value of the euro is not a target but an important input in the ECB’s deliberations. Mr Draghi might also renew the distinction between ‘endogenous’ moves in the currency – which, by reflecting domestic fundamentals, are by definition less of a concern for the central bank – and exogenous movements. We doubt, however, that he would express the same degree of concern as last September, as the recent appreciation has been relatively modest and the economic outlook has improved.

What about the next meetings?
Barring an excessive market reaction until then, we would expect the ECB to modify its forward guidance at the March meeting. The key aspect of the current guidance is that it is very much centred on QE. Net asset purchases will continue until the ECB sees a “sustained adjustment in the path of inflation consistent with its inflation aim” and could be prolonged or increased if data evolve less favourably than the ECB assumes. Both references will have to go, if we are right that the ECB wants to prepare the ground for ending net purchases later this year.

This would require more explicit guidance on interest rates that links the timing of the next  moves more directly to the inflation path envisaged by the ECB. The extent of the link is probably under debate now. We doubt the ECB will want to paint itself into a corner with specific quantitative references; instead, we think it will simply say that higher rates are still far off.

Significant changes to forward guidance unlikely time and that, in any case, they will not come before the end of QE and before further progress in inflation towards its target makes the ECB more confident that it is on the right path. The ECB is also likely to keep its commitment to “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 highlights the stocks as an integral part of the policy accommodation as the flows become less relevant. We continue to expect net asset purchases to end in December after a short tapering in Q4. This would be in line with Mr Draghi’s comments that purchases are not set to end suddenly. But it would also be instrumental in preventing a potentially premature debate on rate hikes.

On our estimates that core inflation will accelerate considerably in H2 (we expect core inflation at 1.6% by year-end), the ECB should be able to start raising the deposit rate in June 2019. This remains our central case.

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