ECB: Mixed decision – TDS

According to analysts at TD Securities, the ECB decision was mixed, providing some dovish cues via extending forward guidance to at least mid-2020, while at the same time, delivering tighter TLTRO terms than expected.

Key Quotes

“Notably, the Governing Council did not explicitly open the door to lower rates through the forward guidance period.”

“Revisions to the forecast were mixed, with headline inflation and growth both revised up in 2019, while growth and inflation were both revised down in 2020, and growth was revised down in 2021 as well. The headline inflation forecast of 1.6% in 2021 was left unchanged. Core inflation was revised down only a tick in 2019, less than we had expected (and in our view, the ECB continues to remain far too optimistic on this front).”

“The ECB clearly sees a bimodal distribution of outcomes in its forecast, and President Draghi was clear today that the ECB stands ready to act should downside risks materialise.”

“Going forward, the ECB highlighted key areas of importance: these include the "rising" threat of protectionism, the evolution of the service sector ("showing resilience"), employment data ("continues to improve"), the manufacturing sector (uncertainties weighing), and whether the Fed cuts rates.”

“Despite the change to forward guidance, we continue to expect the ECB to raise the deposit rate by 15bps in June 2020, with all rates hiked 25bps later in the year. Risks clearly skew to a later lift-off after today's decision, and we will review our forecast as global data and trade risks evolve in the near term.”