ECB: Not expecting new policy signals from the change in language – Danske Bank

Among the key events for next week is the European Central Bank meeting, the first one after its new strategy. Analysts from Danske Bank do not expect new policy signals, they continue to see announcements after the summer. 

“When ECB meets next week, the market attention turns to the implications and new communication on the back of the new strategic framework. We do not expect new policy signals coming from the change in language.”

“With markets having to adjust to the new communication style and potentially also new language, there is risks of larger than usual market moves, although such moves should not be over-interpreted, especially in a less liquid seasonal summer market.”

“Next week’s meeting will mostly be focused on aligning a new, more concise ‘narrative-based’ monetary policy statement with the ‘old’ introductory statement and it will therefore be difficult to read it as either a more dovish or hawkish communication than the June statement. Wording could be focused on tying the rate path more closely to realised inflation, which also would entail tolerating a transitory inflation overshoot, in line with the new framework.”
“We expect ECB to confirm that since the June meeting the economic data has broadly confirmed the baseline trajectory (thereby keeping the growth risk assessment as broadly balanced), although risks from the Delta variant may feature more prominently. We do not expect a reintroduction of the risk to the inflation outlook.”

“The economic recovery is underway, yet the root-cause for too low inflation was still not addressed in the strategic review. Nevertheless, we still expect a discussion of the toolbox calibration after the summer, which may come already in September, where the bond buying is in focus. TLTRO will remain a key feature of the ECB policy toolbox. An announcement of a ‘permanent’ TLTRO at the modalities prior to the pandemic could be announced soon in our view.”

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