ECB likely to stay on hold

Having barely recovered from the Greek drama, the ECB is again faced with a significant challenge, this time to its monetary policy stance. 

"With headline inflation still expected to rise in the near term and resilient forward-looking indicators, the ECB is expected to stay on hold at this meeting and an extension of the QE and TLTRO programmes is expected in the spring of next year, also adding corporate bonds", says Societe Generale.

Although growth and inflation in the euro area have broadly developed as expected since June, the risks to the medium-term outlook for core inflation have increased sizeably with the weaker demand outlook in China and emerging markets. 

"Since the ECB's June forecasts, GDP growth has broadly developed as expected, rising 0.3% qoq in Q2, while inflation stood at 0.2% in July, affected by renewed weakness in energy prices. Looking ahead, the ECB is likely to reduce its forecast for headline inflation in light of lower oil price assumptions", added Societe Generale.