ECB Review: “Too Early” to “Recalibrate” the asset purchase programme - Natixis

Analysts at Natixis note that as expected, the ECB took the backseat at yesterday’s meeting and according to Mario Draghi, it is too early to draw consequences of changes in US fiscal policy and of a hard Brexit.

Key Quotes

“While the ECB welcomed general improvement of economic and financial conditions, as well as evidence of successful achievements of its APP, the upturn in inflation is too much unsustainable for monetary policy accommodation to be reduced. All things considered, and keeping in mind that political uncertainties surrounding the Eurozone will culminate at Spring with the French presidential and general elections, we still believe that the governing council will refrain from announcing a further “recalibration”, i.e. a reduction in the APP before H2-2017.” 

“The ECB held its fire on rates and Asset Purchase Programme at yesterday’s meeting. This outcome was widely expected after the December decision to extend the APP programme to December 2017 and to trim the pace of monthly purchases from 80 to EUR 60bn after March 2017. The ECB did not react by policy action or a change in stance to the positive surprise in December inflation figure and “looked through”. Particularly, its APP programme keeps an upside bias (in terms of size and duration) in case of a deterioration of the environment. No symmetrical bias towards further recalibration was introduced in case of improvement in the inflation outlook, as some observers are demanding to the ECB.” 

“While the ECB welcomed mounting evidence of successful achievements since its APP was launched in October 2014, especially as regards economic sentiment and credit developments, it is still convinced that it cannot rest on its laurels. Doubts remain by how much these improvements rely on ECB action or are by-products of positive global developments; the upturn in inflation is rapid but not lasting; and while core countries would support several rate hikes, the periphery countries are not all out of wood, with Italy remaining fragile. Moreover, we believe that the political uncertainties surrounding the Eurozone and culminating at Spring with the French presidential and general elections are another reason for the governing council to refrain from announcing a reduction in the APP before H2-2017.”