ECB likely to announce six-month extension of asset purchase program

The European Central Bank’s ability to keep its wait-and-see stance is coming to an end. Given that the euro area economic data is indicating resilience to the Brexit vote and an anticipated increase in headline inflation, there is little chance of additional major stimulus, noted Societe Generale in a research report.

Instead, the ECB is likely to enter a period of managing expectations as the threat of deflation wanes, with enough worries regarding the possible negative long-term implications of the unconventional policies permitting for an exit debate to come up in 2017. Tomorrow, the European Central Bank is likely to announce an extension of six months of the APP to “at least until September 2017”, and a change to the buying limits.

“Next year, we expect QE to be tapered as of March and end in December. To ease market concerns then, a TLTRO III is likely, possibly including mortgage loans”, added Societe Generale.