ECB expected to assess QE in October – UOB

Analysts at UOB Group gave their views on the recent ECB meeting.

Key Quotes

“Draghi is still confident that an announcement of the “calibration” of the program will happen in October. This is in line with our baseline expectation that the ECB will announce a “slow and extend” decision on QE at the 26 October meeting”.

“However, the ECB is also likely to be as vague as possible in terms of details as it wants to maintain as much flexibility as possible to guard against any tightening in financing conditions. Rather rather than to commit itself to a pre-determined tapering path, the ECB may prefer to announce a new monthly pace at every meeting”.

“Although Draghi reiterated the FX rate is not a policy target, his concerns on the EUR were loud and clear. This was also evident from the minutes of the 20 July ECB meeting that the Council would not welcome FX overshooting and it was reinforced at this meeting as well. In our view, the size of QE reduction could depend heavily on FX movements. If the EUR continues to rise, we think that the risk of a smaller reduction and/ or longer extension of QE”.

“There is still a risk that the ECB waits until December for a tapering announcement, but doing so involves a tradeoff between having the 2020 forecasts and giving markets only two weeks’ warning on QE plans for January 2018”.