ECB Rate Decision​: ‘ab origine’.

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  • Eurozone Dec. Flash Manufacturing PMI 60.6; Est. 59.7
  • Eurozone Dec. Flash Composite PMI 58; Est. 57.2
  • Eurozone Dec. Flash Services PMI 56.5; Est. 56
  • Germany Dec. Flash Manufacturing PMI 63.3; Est 62
  • Germany Dec. Flash Composite PMI 58.7; Est 57.2
  • Germany Dec. Flash Services PMI 55.8; Est 54.6

As widely expected, ECB policy closed out 2017 with a steady hand on interest rates and QE. The benchmark refi rate stays at 0.00 percent while the rates on the deposit and marginal lending facilities remain at minus 0.40 percent and 0.25 percent respectively.

Forward guidance was also unrevised, essentially implying no move on official rates until at least September 2018 and, quite probably, 2019.

Subject to any significant economic shocks, the policy stance for next year was effectively laid out at the ECB’s last meeting in October. That foresaw a halving in the current pace of net monthly QE purchases to E30 billion from January through at least September. Interest rates will not be hiked until well after the completion of QE.


There was little of note in President Draghi’s press conference although the new economic forecasts do suggest that the Council has become more optimistic. These show a significantly stronger growth profile, albeit with risks to the projection still evenly balanced. Real GDP is now put at 2.4 percent this year, up from September’s 2.2 percent call and 2.3 percent in 2018, some 0.5 percentage points stronger than last time. However, the inflation outlook has been adjusted only slightly. Hence, 2017 remains at 1.5 percent while 2018 is raised a couple of ticks to 1.4 percent and 2019 also stays at 1.5 percent. By 2020, the headline HICP is seen running at a 1.7 percent yearly rate, and so still short of its near-2 percent target. The slow recovery in prices provides justification for the extension to the QE programme next year and, given the persistent undershoot, may even see some question the wisdom of reducing the size of future monthly asset purchases in the first place.

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Updated staff macro-economic projections. We expect the updated staff forecasts to show somewhat of an increase in the 2018 GDP growth forecast, owing to the small upside surprise to GDP growth in Q3 and a small lift to sequential growth rates in Q4/Q1 owing to recent momentum. Reflecting recent increases in oil prices, we expect the headline HICP inflation forecast for 2018 to rise 0.1pp to +1.3% (with core HICP inflation unchanged at +1.3%). A forecast for the year 2020 will be included in this projection for the first time. We expect the ECB to forecast headline HICP inflation at +1.7% (with Q4 2020 inflation at +1.8%yoy). The rise in inflation 2019 and 2020 projected by the ECB staff would reflect some underlying increase in wages owing to reduced economic slack and lower unemployment. These inflation projections would signal a continued need for accommodative monetary policy, but also some progress in raising inflation.


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  • R.W.N II

Source: Econoday, Heisenberg Report 

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