Summary: ECB on autopilot for now

Following the decision to extend the QE programme for another nine months in 2018, we do not expect the ECB to make any changes to its policy stance at its upcoming meeting. Instead, we think policymakers will put off any substantial discussion about the next move or changes to the forward guidance until well into 2018.

Activity Indicators have remained strong and we expect the ECB to revise its growth and inflation forecasts upward in light of the ongoing strong economic momentum.

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Consensus seems to be growing in the Governing Council that the October QE extension was the last one, as the ECB is increasingly shifting towards a more holistic view of the economy and inflation. Based on this, we think it is important to watch developments in ‘supercore’ inflation.

Other topics that could come up during the Q&A include the recent volatility in the Eonia fixing and the repo market over year end.

We think it is likely that the corporate bond and covered bond purchase programmes’ share of QE will be increased from January 2018.

In our view, it is too early for the ECB to spur the next ‘wave of normalisation’ pricing just yet, so we project EUR/USD with in a 1.17-1.20 range near term.

We expect the trend for tighter spreads and flatter curves in the euro fixed income market to continue.

Full report in PDF

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