The ECB hawks already urged an adjustment of the forward guidance for the APP at the January meeting, and at yesterday’s meeting they finally got it. The ECB is now dropping the option of increasing its monthly bond purchases again and is thus taking another admittedly tiny – but self-confident – step down the long road to monetary-policy normality. At the same time, the monetary watchdogs’ decision creates the conditions for deciding how the bond-purchasing program should basically continue. On the market side, the ECB decision was initially interpreted as slightly “hawkish.”
At the press conference ECB president Draghi again expressed confidence with regard to the European economic outlook. However, the increasing protectionist tendencies (US penal tariffs) do represent a further potential risk factor for the growth outlook. With regard to the inflation outlook the central bank president to emphasize the necessity of an extensive monetary-policy stimulus. However, the monetary watchdogs’ focus is clearly shifting away from the monthly bond purchases towards the reinvestments. All in all, after a “hawkish measure” Draghi has succeeded in reining in the markets with a “dovish press conference.”
We believe our expectation that the monetary watchdogs will depart from their present monetary policy course in homeopathic steps has been confirmed. Next the ECB’s wording will no doubt decouple the bond-purchasing program from the inflation target. This would basically allow the central bankers to decide to let the monthly bond purchases run out by the end of the year.