ECB Preview: Time to Stay Put – Danske Bank
Senior Analyst, Pernille Bomholdt Henneberg at Danske Bank, expects the ECB to maintain its patient stance at the meeting today and not send any new signals about more easing.
“The minutes from the latest ECB meeting in April clearly confirmed that the ECB is in implementation mode.
The ECB will publish updated growth and inflation forecasts at the meeting this week. We look for an upward revision to the ECB’s projection for headline inflation in 2016-17 due to the higher oil and food prices, but the core inflation forecast will in our view be revised lower over the entire forecast horizon.
Notably, the ECB might revise its 2018 inflation forecast lower. This should follow as the forward oil price has increased more in 2016 and 2017 than in 2018, implying the inflation rate for energy prices is likely to be lower in 2018.
From a market perspective, expectations are very low with a zero probability of a 10bp deposit rate cut at the upcoming meeting. We stick to our view that the ECB will remain side-lined in the global currency war and not cut policy rates further.
We still believe that the ECB will have to extend its QE purchases beyond March 2017 as the ECB, in our view, will not see inflation at a sustainable path towards 2%. We do look for a considerable rise in inflation starting from June this year, but the main driver is the contribution from energy prices and no matter whether the oil price follows our forecast or performs in line with the forward market, the support will fade in Q2 17.
Focus is also likely to turn to the situation in Greece as the ECB may reinstate the waiver thereby accepting Greek bonds as collateral again.”