ECB: Speculation about more easing is too aggressive - Danske

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Jan 8, 2016.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

    Oct 7, 2015
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    FXStreet (Córdoba) - According to analysts from Danske Bank, more is needed to convince the majority of the European Central Bank (ECB) Governing Council to step up more easing and with the unemployment rate falling toward pre-crisis levels, more stimulus measures in the short-term seem unlikely.

    Key Quotes:

    “Speculation that the ECB will ease again increased this week as the low oil price together with the weaker-than-expected inflation prints for December could force it to defend its inflation mandate. A full 10bp deposit rate cut is priced in for October 2016 while a cut in March is priced with around a 50% probability.”

    “In our view, particularly the pricing in March is aggressive and keeping in mind the ‘light’ menu of easing announced in December, we believe more is needed to convince the majority of the Governing Council to step up the easing.”

    “Our expectation of a patient ECB should be seen in light of the latest activity indicators, which point to a re-acceleration of activity in 2016 after the soft patch in mid-2015.”

    “In the latest forecast from December, the ECB expected inflation to be 1.6% in 2017 and although this forecast might be lowered, we expect the ECB to release a 2018 inflation forecast above 1.5%.”

    “In our view, an unwarranted financial tightening could force the ECB to ease again. This could follow through a stronger effective euro or higher real rates as a consequence of lower inflation expectations.”
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