4 Mar 2015
ECB to change growth forecasts citing positive developments – KBC
FXStreet (Barcelona) - With the ECB press conference tomorrow, the KBC Bank Research Team notes that it would be interesting to see how Draghi changes the forecasts for inflation and growth, expecting a marginally positive number for inflation.
Key Quotes
“For 2015, the staff forecast was for a 0.7% increase of inflation. That looks still too high‐ the EU commission’s latest forecast is ‐0.1% but with a weaker exchange rate and oil prices recovering slightly as well as some limited early impact from QE, the ECB may opt for a marginally positive number.”
“More interesting will be their judgment on 2016 and 2017 inflation (and growth). We could imagine a first upward revision from 1.3% in 2016 reflecting the impact of the factors mentioned above.”
“While the 2017 figure is a first forecast, it assumes considerable significance because it should provide us with the ECB’s sense of the ‘sustained adjustment in inflation which is consistent with our aim of achieving inflation rates below, but close to 2% over the medium term ’that the bond buying programme is intended to deliver.”
“The ECB will be cautious in interpreting these recent positive developments, but if they would strengthen, at some point markets may contemplate a premature end to the QE programme. At very least, the ECB hawks will rear their heads and plead for an end to the programme.”
“However, we don’t expect Draghi will suggest a premature end is likely. This could threaten his hard won credibility with the markets. Any such suggestion would shock the markets and reverse some of the positive financial developments born in the run‐up to the QE announcement.”
Key Quotes
“For 2015, the staff forecast was for a 0.7% increase of inflation. That looks still too high‐ the EU commission’s latest forecast is ‐0.1% but with a weaker exchange rate and oil prices recovering slightly as well as some limited early impact from QE, the ECB may opt for a marginally positive number.”
“More interesting will be their judgment on 2016 and 2017 inflation (and growth). We could imagine a first upward revision from 1.3% in 2016 reflecting the impact of the factors mentioned above.”
“While the 2017 figure is a first forecast, it assumes considerable significance because it should provide us with the ECB’s sense of the ‘sustained adjustment in inflation which is consistent with our aim of achieving inflation rates below, but close to 2% over the medium term ’that the bond buying programme is intended to deliver.”
“The ECB will be cautious in interpreting these recent positive developments, but if they would strengthen, at some point markets may contemplate a premature end to the QE programme. At very least, the ECB hawks will rear their heads and plead for an end to the programme.”
“However, we don’t expect Draghi will suggest a premature end is likely. This could threaten his hard won credibility with the markets. Any such suggestion would shock the markets and reverse some of the positive financial developments born in the run‐up to the QE announcement.”