ECB likely to continue with current pace of asset purchases until end-2017

The European Central Bank’s assessment of the currency bloc’s growth outlook has brightened. During its April meeting, ECB president Mario Draghi described the rebound as being “increasingly solid” and that downside risks have diminished further. The central bank stated that deflation risks have disappeared greatly; however, it is not yet convinced that the inflation would be sustained at its goal of close to but lower than 2 percent without continued monetary policy stimulus.

“We anticipate the ECB will make further changes to its statement at the next meeting on 8th June, when it is expected to upgrade its growth assessment towards a more balanced outlook”, noted Lloyds Bank in a research report.

The ECB is also expected to change its current downward bias for interest rates towards a more neutral formulation. The central bank is not yet prepared to consider a decrease in its current monthly EUR 60 billion of asset purchases or a rise in policy rates. The ECB is expected to carry on with its current rate of asset purchases until the end of this year.

“Our forecast is for it to communicate a reduction in asset purchases in 2018 at the September meeting, potentially to an average monthly pace of €40bn in H1, but policy rates are likely to be kept on hold until the second half of 2018”, added Lloyds Bank.