ECB’s account of the monetary policy meeting

The October ECB meeting was more dovish than expected, resulting in a sharp decline in the EUR/USD. Specifically, the Governing Council re-inserted the possibility of cutting the deposit rate into the ECB's toolbox and reiterated that the "ECB balance sheet will continue to expand until we see a sustained adjustment in the path of inflation. 

The ECB minutes should again show that economic risks are titled to the downside, notably as regards the recovery of inflation to the target. It will be interesting to see if the bank's governors already have some views on the magnitude of the possible rate cut and and if they expressed any new views on the "effective" floor, or on possible expansion to new asset classes. 

The minutes of the January meeting showed that the ECB contemplated purchases of corporate bonds to complement its QE programme. This may have also been the case at the October meeting. Press reports indicate that the ECB has been investigating possible purchases of municipal and regional bonds, mainly as a way of boosting available German assets if the QE programme is extended. 

"Our view is that the ECB will have to take substantive action in December. We expect: 1) a 10bp deposit rate cut; 2) an increase in the size of asset purchases from €60bn to €70-€80bn (with the addition of corporate bonds); 3) an extension of the QE and TLTRO programmes beyond September 2016", notes Societe Generale.