ECB could face a more complicated word in 2018 - ING

Carsten Brzeski, Chief Economist at ING points out that the European Central Bank closed the year without any surprises. According to him the ECB sees strong growth and muted inflationary pressure as no reason to changes its current stance any time soon.

Key Quotes: 

“No changes to rates. No changes to QE. No changes to forward guidance. No changes at all. This is the main outcome of today’s ECB meeting. As expected, the ECB did not provide any argument that could create doubts about its determination to fully implement its dovish tapering in 2018. If anything, the ECB’s macro-economic outlook with strong growth but very little inflationary pressure currently confirms our view that we can see another ‘lower for longer’ beyond September 2018.”

“As regards the macro-economic outlook, the ECB acknowledged the strong growth momentum in the Eurozone economy. Already in October, the ECB stopped talking about an economic recovery. It is now an economic expansion.”

“2017 has been a year which many Eurozone policy-makers probably would never want to see ending. Strong growth and low, but positive, inflation has created a goldilocks moment in the Eurozone economy. A very comfortable situation for the ECB. However, looking into 2018, the ECB could face a more complicated world.”

“With central banks around the world hiking interest rates and trying to reduce monetary policy accommodation, pressure on the ECB to step up its tapering process could increase, from both the outside and the inside. Just imagine a situation in which the growth momentum strengthens further, core inflation gradually picks up and headline inflation breaches the 2%-level on the back of higher oil prices. In such a scenario, it could be hard to keep the ranks at the ECB closed.”

“For the time being, we stick to our base case scenario in which the ECB continues with its dovish tapering and will even announce another ‘lower for longer’ going beyond September 2018, ending QE by December 2018.”