ECB: Anchoring expectations - Rabobank

Analysts at Rabobank, point out that the release of the monetary policy statement triggered a slightly hawkish reaction in markets, but President Draghi managed to give the hawkish slant a much more dovish angle.

Key Quotes

“On balance, the ECB decision and Mr. Draghi’s subsequent remarks left markets pretty much unchanged by the end of the day.”

“Looking at the various ‘leaks’ in the wake of the ECB meeting, we would argue that they have served to reinforce the market pricing that was already in place – i.e. that of a first rate hike by mid-2019. The current basis for staff calculations –a small QE extension and a mid-2019 hike– may be an acceptable middle-ground for the entire Council.”

“We would argue, however, that risks to the current market pricing are skewed. Indeed, we find it quite unlikely that the ECB will move sooner on rates, even if the Council doesn’t extend net purchases into Q4 (note that an extension is still our base case). But, conversely, risks of a delayed rate hike are still present.”