ECB preview: Much ado about (almost) nothing – HSBC


Draghi’s recent speech has sparked market concerns about a more hawkish ECB, but with the inflation outlook little changed ahead, analysts at HSBC maintain their view that tapering will be gradual and that there won’t be any rate rises this year or next.

Key Quotes

“Mr Draghi’s statement on 26 June that “deflationary forces have been replaced by reflationary ones”, alongside a more hawkish tone from central bankers globally, sparked market concerns about an earlier than expected tightening of eurozone monetary policy. Market prices now imply a 65% probability of depo rate tightening of 10bp or more by June 2018. But some perspective is required. The recent move in implied rates only took us back to early May levels. The June ECB minutes argued that the inflation outlook was little changed, despite a firming growth recovery. And tapering merely reduces the pace of easing: tightening may be a long way off.”  

“In our view, the ECB is rightly preparing markets and governments for the end of QE. But with no signs of underlying inflationary pressures, and political risks ahead, we have not changed our view that tapering will not end until Q4 next year. And with the ECB maintaining its guidance that rates will be on hold until net purchases have ended, we do not anticipate any policy rate rises this year or next.”

“There won’t be a new forecast in July. But the story hasn’t changed much from June. Survey data, although they have softened a little, continue to point to healthy growth in Q2. But as Mario Draghi has long argued, the good news on growth is not translating into higher inflation. In June, inflation fell to 1.3% y-o-y, although core and services inflation ticked up slightly. The oil price is c7% below the cut-off point for the June forecast, and the euro has appreciated another c1.3%. So if anything, there is a risk of another downside revision to the ECB inflation forecast in September.”

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