ECB to keep policy unchanged in coming months, to extend QE purchases beyond 2017

This week, during the ECB meeting, Draghi is likely to maintain a dovish tone, but is not expected to undertake any new measure, according to Danske Bank. The European Central Bank continues to be under pressure to ease policy again in spite of the easing packages announced in March as expectations for inflation continue to be at historically low level.

Also, the euro has appreciated after the ECB eased policy, noted Danske Bank. Draghi, during its last meeting in March had stated that he does not expect additional rate cuts; however, he is likely to open the door for further rate cuts again, added Danske Bank.

According to the ECB minutes, the Governing Council will not be ruling out additional reduction in policy rates as inflation’s outlook might be altered by new shocks. There are not high expectations before ECB’s meeting; however, further reduction in rate is projected with around 50% chance in September, according to Danske Bank. Meanwhile, a weaker EUR/USD might provide some short-term relief to the European Central Bank.

The ECB is expected to keep policy unchanged in the coming months in spite of Draghi’s soft words, while the central bank waits to see the impact of its recent policy initiatives, said Danske Bank. Buying of corporate bonds and the first TLTRO II auction will not begin until June. This, for some time will keep the ECB sidelined.

The European Central Bank is likely to extend its buying of QE after March 2017 as inflation is unlikely to accelerate enough for the central bank to keep policy on hold, according to Danske Bank.

“We do not expect additional rate cuts, but a strong appreciation of the effective euro could force the ECB to cut again”, added Danske Bank.