Columbia Threadneedle: Comment on upcoming ECB meeting

October 23, 2018

Please find below a comment on this week’s ECB meeting from Adrian Hilton, Head of Global Rates and Currency at Columbia Threadneedle Investments:

This week’s ECB meeting is unlikely to be one of the year’s most crucial, but it should provide some useful colour on the evolution of risks to the central bank’s economic outlook. Draghi’s narrative of above-trend growth and gradually-normalising inflation against a backdrop of increasingly binding capacity constraints remains intact. But clouds are gathering on the horizon: activity this year – especially where dependent on foreign demand – has disappointed, while core inflation has struggled to break decisively above 1%. Meanwhile, US-China trade tensions continue to escalate, and the widening of Italian bond spreads (compared to ‘core’ yields) presents a contagion risk to the domestic banks and more broadly. We’ll be keen to see whether the ECB remains confident enough to continue describing the risks to growth as “balanced”.

Of technical interest, the Governing Council may provide additional details of its plans to reinvest the proceeds of maturing assets purchased under quantitative easing. In particular, whether they will reserve flexibility to extend the duration of purchases to stem the rise of long-term yields, if required.