ECB walks the Sintra talk and announces bold action

The accounts of the June policy meeting stated that the Governing Council stands ready to adjust its monetary policy stance by all available instruments. Following the seminal Sintra speech of Draghi and also a speech by Lane, it became clear that the ECB is preparing bold policy measures. Today, the Governing Council lay the ground word

Highlights:

  • At today’s meeting, the Governing Council strengthened its forward guidance on rates, made clear that this guidance will be strengthened further, and de facto announced new QE.
  • The key triggers for forthcoming action are the medium-term inflation outlook and slower growth.
  • Draghi adopted a very dovish tone and in the introductory statement the symmetry of the inflation target was mentioned for the first time.
  • Bold measures will likely be announced in September. We continue to look for a restart of QE amid a 10 bps deposit rate cut, the strengthening of the forward guidance and the introduction of a tiered deposit rate system.
  • Depending on the extent of the downturn we see further measures in the pipeline in 2019 with another 10 bps deposit rate cut in December already our base case.

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ECB WALKS THE SINTRA TALK AND ANNOUNCES BOLD ACTION

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