ECB Preview: Don’t expect fresh measures today - Rabobank

Stefan Koopman, Market Economist at Rabobank, suggests that today’s ECB rate decision is its first since the UK’s EU referendum.

Key Quotes

“Although a Brexit-vote had been marked as a potentially significant downside risk to the outlook, it would appear that this topic had been discussed only briefly in the June meeting. Despite the relatively muted market reaction, the UK’s vote to leave the EU has injected a huge dose of uncertainty with regard to the outlook.

It’s likely that the Eurozone economy will be affected by “Brexit” through trade, investment, exchange rate movements, general confidence (tomorrow’s PMI’s will be important) and monetary policy responses. Our initial assessment suggest that this could shave off several tenths of a percentage point from growth – with the biggest impact falling on 2017. The risks to this forecast are clearly skewed to the downside, even more so for the broader consequences that the Brexit vote may have for the political cohesion in other EU member states

We don’t expect the ECB to announce fresh measures today, but in absence of this we do expect Mr. Draghi to underscore that the ECB stands ready to add more stimulus if its forthcoming analysis indicates that this is warranted. We therefore call for a 10 bps cut in the deposit rate, from -0.40% to - 0.50%, at the meeting in September, if only because it would re-affirm its dovish stance and is the easier one among the Council’s options.

We also hope that Mr. Draghi will give some detail with regard to the ECB’s assessment of the first TLTRO-II, which, with a net uptake of EUR 34bn, perhaps wasn’t the huge success that he and his fellow GC members had hoped for. Finally, with regard to the purchase programme, Mr. Draghi may also face questions on what tweaks the ECB still has available should it run into difficulties in sourcing sufficient paper to meet its monthly target.”