Back
1 Sep 2015
ECB Interest Rate Decision Expectations – Danske Bank
FXStreet (Delhi) – Pernille Bomholdt Henneberg, Senior Analyst at Danske Bank, expects a dovish tone from Draghi on Thursday as there is increasing pressure on ECB chief with inflation expectations de-anchoring. This follows the risk to ECB’s outlook for higher inflation which is being threatened by the lower oil price and stronger EUR. In addition, there is likelihood of more emphasis on the downside risk to the growth outlook due to the weakness in China, the Analyst adds.
Key Quotes
“Euro area HICP inflation was unchanged at 0.2% y/y in August against consensus expectations of a small decline to 0.1% y/y. Core inflation was unchanged at 1.0% y/y, which was also better than expected as consensus was for a decline to 0.9% y/y.”
“Looking at the details for core inflation the labour-dependent service price inflation was unchanged at 1.2% y/y, while goods price inflation increased for the six consecutive month. It is now at 0.6% y/y, which is the highest rate since June 2013.”
“The stable headline and core inflation in August reduces the pressure on the ECB a bit. However, due to the latest decline in the oil price there is still a risk of lower core inflation due to an indirect impact from energy prices.”
“In our view, the ECB will keep a close eye on core inflation. We view the ECB’s core inflation forecast for 2016 as too optimistic and lowering could imply the ECB will extend its QE purchases beyond September 2016. However, we see it as most likely that the ECB will revise its core inflation forecast in December 2015 or in 2016.”
Key Quotes
“Euro area HICP inflation was unchanged at 0.2% y/y in August against consensus expectations of a small decline to 0.1% y/y. Core inflation was unchanged at 1.0% y/y, which was also better than expected as consensus was for a decline to 0.9% y/y.”
“Looking at the details for core inflation the labour-dependent service price inflation was unchanged at 1.2% y/y, while goods price inflation increased for the six consecutive month. It is now at 0.6% y/y, which is the highest rate since June 2013.”
“The stable headline and core inflation in August reduces the pressure on the ECB a bit. However, due to the latest decline in the oil price there is still a risk of lower core inflation due to an indirect impact from energy prices.”
“In our view, the ECB will keep a close eye on core inflation. We view the ECB’s core inflation forecast for 2016 as too optimistic and lowering could imply the ECB will extend its QE purchases beyond September 2016. However, we see it as most likely that the ECB will revise its core inflation forecast in December 2015 or in 2016.”