Fra ABN Amro:

ECB View: Weak underlying inflationary pressures signal slow exit – The ECB published the account of the March monetary policy meeting earlier today. We draw three main conclusions. One is that the Governing Council sees trade wars as mainly being a downside risk to the outlook, which would make its monetary policy stance more accommodative than it would be otherwise.

The account notes that ‘there was widespread concern that the risk of trade conflicts, which could be expected to have an adverse impact on activity for all countries involved, had increased. The impact on the global economy and on the euro area would ultimately depend on the scale of import tariffs imposed by the United States, as well as the scope of any retaliatory measures. However, it was also cautioned that negative confidence effects could arise.

The impact of increased trade protection on inflation was seen as being more ambiguous and uncertain’.

Second, the ECB is optimistic about the economic outlook and this is making it more confident it will meet its inflation target in the medium term. The account notes that the strong outlook for growth ‘confirmed the increased confidence that inflation would converge to the Governing Council’s inflation aim of below, but close to, 2% over the medium term’.

It must be noted that the data flow have softened since the March meeting, but ECB speakers since then suggest that the central bank has not changed its view on the outlook.

Third, despite this, the ECB does not judge that the conditions for QE exit have been met. According to the account the ‘broadly agreed conclusion was that the evidence for a sustained rise in inflation towards levels consistent with the Governing Council’s inflation aim was still not sufficient’.

This reflects that ‘recent inflation outturns had remained some distance away from the Governing Council’s inflation aim and the incoming information continued to point to muted price pressures overall’. In addition, the central bank judges that ‘an ample degree of monetary policy accommodation remained necessary to accompany the economic expansion and for price pressures to continue to build up and support a rise in inflation to the Governing Council’s medium-term inflation aim.’

It is unlikely that this assessment will change by July, but the ECB seems to be minded to wind down net asset purchases after September in any case. Rather, we think that the assessment will mean a relatively long tapering period, with rate hikes not following until much later.

We continue to think that the ECB will set out a clear roadmap for the end of its asset purchase programme in June/July. We expect a tapering period of 6 months (3 months EUR 20bn p/m and 3 months EUR 10bn p/m).

We do not expect the first rate hike to follow until the second half of next year (10bp in September and another 10bp in December). We expect the ECB to maintain or even strengthen its forward guidance on interest rates when it announces a wind-down of net asset purchases. (Nick Kounis)