ECB: Expect further round of policy easing towards the end of the year - RBS

Research Team at RBS, trimmed their end-year target for the ECB’s deposit rate to -0.5% from -0.6% relative to a current level of -0.4%.

Key Quotes

“And our end-year target for the monthly asset purchase programme has been lowered to €100-105 billion from €120-125 billion. This contrasts with the current monthly pace of €80 billion.

The reason for this change is that Eurozone economies appear to have weathered the Brexit storm pretty well so far and certainly better than we had expected. Credit market conditions have loosened in recent weeks at the same time as periphery bond spreads have tightened. And some of the forward-looking regional economic data has held up reasonably well. An improvement in sentiment toward the world economy, partly driven by a string of stronger than expected US data releases, has also helped matters.

Notwithstanding this, we remain guarded about the outlook for the Eurozone in the coming months for a number of reasons. Firstly notwithstanding those stronger US data points the outlook for global growth is weak and with risks that remain skewed to the downside. Secondly the imbalances that have bedevilled the Eurozone in recent years show no signs of abating and in some cases appear to be getting worse. Thirdly political instability continues to fester amidst recent evidence suggesting that many populations – and not just the UK’s – have become more hostile toward the EU in recent months.

In time we suspect these features of the European and broader global environment will trigger further economic instability and heightened deflationary pressures. And that will set the stage for a further round of policy easing from the ECB toward the end of the year.”