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Triggers for additional easing from the ECB – Danske Bank

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Jan 21, 2016.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

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    FXStreet (Delhi) – Research Team at Danske Bank, suggests that in their view, the message from the latest ECB meeting in December was that the bar for additional and aggressive easing is higher than has previously been seen and Draghi’s usual ability to deliver more than what markets expect does not seem to be supported by a majority of the governing council any longer.

    Key Quotes

    “In light of this, we believe that enough has not yet changed for the ECB to conclude that more easing is needed, but related to this, we see three potential triggers that needs to materialise for the ECB to deliver more easing:

    1. An unwarranted tightening of the policy stance

    2. A worsening of the medium-term outlook for inflation

    3. A weakening of the domestic growth outlook

    The first trigger could materialise if real rates go up due to lower inflation expectations or if the effective exchange rate appreciates. These financial conditions have tightened following the December meeting, but comparing the decline in inflation expectations to the oil price decline the moves have been modest. The stronger euro should also reflect that the euro area now benefits more from a lower oil price than the US, and this positive impact on the economy must also be taken into account when the ECB considers its monetary stance.

    Regarding the second trigger, we have already argued, that the ECB might wait at least for its inflation projection update in March before it concludes on the impact on the medium-term outlook for inflation. Finally, if the domestic growth outlook starts to weaken, the ECB is likely to step up its easing again, as this will clearly weaken the arguments from the hawks.”
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