(ABM FN-Dow Jones) The European Central Bank will maintain monetary policy for the time being, especially now that inflation in the eurozone has fallen slightly. The focus at the meeting next Thursday will therefore be on forward guidance and the specific inflation target that the central bank recently announced. This is the expectation of economists in the run-up to the ECB’s interest rate decision.
The main policy rate will therefore probably remain at 0.00 percent and the penalty interest rate at 0.25 percent. The deposit rate is expected to be maintained at 0.50 percent negative.
A few weeks ago, the ECB announced that it is fixing its inflation target at 2 percent. Earlier, the central bank aimed for an inflation target of below, but close to 2 percent. The new strategy leaves room for the ECB to extend its accommodative monetary policy in an attempt to bring inflation to the desired level.
“The forthcoming ECB meeting on Thursday will shed more light on these new guidelines, as well as discuss what policy will look like for the rest of the summer,” said Monex Europe currency analyst Ima Sammani. the latter refers to the forward guidance for monetary policy.
Sammani thinks Thursday’s meeting is primarily a “credibility test” for the ECB.
Inflation target not easy
“By warning investors about an impactful policy meeting, the ECB has created an important credibility test for itself. [voorzitter Christine] Lagarde is slightly easier compared to the divergent central banks like the Fed and the Bank of England, who are already talking about the tightening cycle,” admits Sammani, “but the goal [van 2 procent] is not easy at all. Over the past decade, the ECB has consistently failed to push prices and inflation expectations towards target, even though significant accommodation had been provided.”
Monex Europe is counting on markets not reacting strongly to what Lagarde says in her press release, “as policy direction is already largely priced in. The bar for surprises at the ECB is high and that means the upcoming meeting will be a low-risk event,” said Sammani.
Morgan Stanley economists expect the ECB to wait for more incoming data before making new policy decisions. Last week it was announced that inflation in the eurozone stood at 1.9 percent in June, slightly below 2.0 percent in May.
“After the strategy review, we expect the July ECB meeting to agree on more moderate forward guidance and commit to a smooth transition, but decisions will be postponed until the autumn,” the bank said.
Morgan Stanley does not expect a reduction in bond purchases before December. The economists believe that the Pandemic Emergency Purchase Program will end on the current schedule, after which the Asset Purchase Program will be expanded and made more flexible.
BNP Paribas economists also expect more clarity on the ‘post-PEPP environment’, “which will allow the ECB to underline its message of continued accommodative monetary policy,” according to BNP Paribas economists.
The ECB’s easing attitude will probably put pressure on the euro against the dollar, ING thinks. The euro/dollar traded at 1.1768 on Monday afternoon.
The ECB will announce its interest rate decision on Thursday at 13:45. An explanation from chair Christine Lagarde will follow at 2:30 PM.
ABM Financial News; [email protected]; Redactie: +31(0)20 26 28 999.
From Beursplein 5, the editors of ABM Financial News keep a close eye on developments on the stock exchanges, and the Amsterdam stock exchange in particular. The information in this column is not intended as professional investment advice or as a recommendation to make certain investments.
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