- At today’s meeting, the Governing Council walked the talk and delivered bold policy action.
- The ECB will restart open-ended QE in November (€ 20 bn/month), cut the deposit rate by 10 bps to -0.5%, introduce a two-tier system for reserves (a small relief for banks) and made the unwinding of the easing measures dependent on the inflation development (reinforced forward guidance). Also, the TLTRO conditions were improved.
- Thereby the ECB sent the expected strong signal to markets that it will do everything to lift inflation lastingly.
- During the press conference Draghi adopted a dovish tone, leaving the door for future easing measures open. However, he is aware of the limits of future monetary policy action and is strongly calling for fiscal policy action.
- Looking ahead, we continue to expect one further depo rate cut but see no further increase in the volume of QE, unless the downwardly revised macro projections take a further hit (recession scenario).