ECB likely to expand asset purchases and add corporate bonds

Euro area inflation returned to negative territory in September (-0.1% yoy). 

"Following persistent weakness in energy prices, the headline inflation is expected to average 0.1% in 2015 and 1.0% in 2016 compared to our previous forecasts of 0.2% and 1.1% respectively", says Societe Generale. 

The euro area is likely to see continued lowflation in 2015-2016, with further downside risk. Inflation is likely to climb by year-end due to the base effects stemming from oil prices and the assumption of a recovery in Brent prices.

"Despite the expected recovery in 2016 and beyond, inflation will likely remain well below the ECB's medium-term target of 2.0%. ECB envisages a continuation of the QE and TLTRO programmes beyond September 2016, with added purchases of corporate bonds", added Societe Generale. 

This is likely to be linked to lower ECB inflation forecasts in March 2016, with the "close to 2%" target expected only in 2018. Should the inflation outlook weaken by more, the ECB is expected to expand its asset purchases by €20bn a month and add corporate bonds, likely at the end of this year.