ECB measures take account for prolonged uncertainty but recovery still seen intact

Domestic growth story still intact amid prolonged uncertainty: Against the backdrop of a surprisingly strong Q1growth the ECB saw no need to materially change its 2019 growth expectation. More fundamentally, the domestic growth story is still seen intact but the growth outlook for the coming years was slightly reduced.

Highlights:

  • The Governing Council’s major concern is about prolonged uncertainty but the base case of continuing growth is still seen intact while measures to protect the euro area economy are needed.
  • Within the Governing Council (GC) some members even opted for easing measures. In the end they unanimously agreed on the following:
          o To leave key rates constant “at least through the first half of 2020” thereby extending its forward guidance by six months.
          o In the forthcoming TLTROs the rate applied can at best be 10 bps above the average deposit rate prevailing over the life of the operation. This was less generous than anticipated by market participants.
  • The ECB has moved into a wait-and-see stance with heightened attention to downside risks. It has postponed policy normalization further and we now do not expect any rate hike until the end of next year at least.

Download the full publication below

ECB MEASURES TAKE ACCOUNT FOR PROLONGED
UNCERTAINTY BUT
RECOVERY STILL SEEN
INTACT

RELATED INSIGHTS

EQUITIES: POSITIVE RETURNS AHEAD DESPITE CHALLENGES
Equity markets have rebounded from a historical slump in Q1, with US markets even posting fresh record highs. We acknowledge the risen risks of setbacks amid loftier valuations, elevated political risks (US elections, Brexit and US-China frictions) and Covid uncertainties into autumn.
TAKING MONETARY POLICY TO YET ANOTHER LEVEL
The presentation of the new Long Term goal and strategy on August 27 marks a deep shift in the Fed’s monetary policy. The new way inflation and the labour market will affect monetary policy will result in a marked downward bias to interest rates.