Monday, October 12, 2015

ECB: Further easing coming in December - Commerzbank

FXStreet (Delhi) – Research Team at Commerzbank, suggest that the ECB is likely to loosen monetary policy further and believe that its growth forecast of 1.7% for 2016 is too high (Commerzbank: 1.3%).

Key Quotes

“Furthermore, the recent oil price slump should also lower the prices of non-energy goods over time so we, unlike the ECB, do not expect core inflation to pick up to 1.4% in 2016 (Commerzbank: 0.8%).”

“The slowdown of growth in the emerging markets is starting to impact the euro zone. German industrial orders surprisingly plunged in August – especially from countries outside the euro zone. We expect sentiment indicators such as the Purchasing Managers Index to prove quite disappointing too. This should shatter the basis for the ECB’s optimistic growth forecast for 2016 (1.7%).”

“A further trigger for loosening monetary policy already in December could come from marketbased inflation expectations. At 1.6%, the inflation-swap-based 5-year inflation expectations five years ahead (5x5) are well under the EB’s 2% mark. Moreover, they are only around 10 basis points above the all-time low in January (1.48%). These market-based inflation expectations are no longer anchored at the ECB inflation target, which the ECB will not accept in the longer term.”

“Overall, we stick with our forecast of monetary easing in December. Should the ECB act this year, an increase in the monthly purchases seems more likely to us than merely an extension of purchases beyond September 2016, which would be too far ahead in the future to have much near-term effect.”
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