La Française: Pre-ECB commentary

La Française: Pre-ECB commentary

ECB
ECB (07)

Provided by François Rimeu, Senior Strategist at La Française AM

The ECB will hold its quarterly monetary policy meeting on July 22nd. Please find below what we expect:

  • We expect the ECB to redefine its forward guidance to align it with the strategic review.
  • We expect this new forward guidance to sway towards a more accommodative monetary stance, taking into account the new 2% inflation target (vs « close but below 2% ») and the fact that they will tolerate inflation moderately above 2%.
  • We expect the ECB to insist on the need to have a « forceful and persistent » answer when rates are at the lower bound.
  • We expect the introductory statement to evolve towards a « more narrative-based and more concise monetary policy statement ».
  • We do not expect to have clarification about the end of the Pandemic Emergency Purchase Programme (PEPP) and the potential increase of the Asset Purchase Programme (APP) following March 2022. Those decisions will be left for the September meeting or the ECB forum in Sintra (September 28-29th).
  • We expect the ECB to probably maintain a cautious tone on the economic front, due to concerns about the delta variant of COVID-19.

All in all, we expect the ECB to adopt a dovish stance, but market reaction could be relatively limited considering they have already priced it in.