ECB could reinforce its cautious mode going forward - BBVA

The Governing Council of the European Central Bank will meet on Thursday. According to the Research Department at BBVA, the central bank is expected to leave monetary policy unchanged and they consider that it will confirm its expectation of ending QE by December and maintaining interest rates at their current level through the summer of 2019. They warn about the risk of a reassessment in balance risks. 

Key Quotes: 

“The habitually cautious tone can be reinforced on the back of growing risk due to lingering concerns about protectionism, recent stock market correction and renewed bond sell-off in Italy. In this regard, we do not expect the strategy on QE to be altered at all.”

“On monetary policy, it should give some clues about how the reinvestment framework will be instrumented as the APP will end in December. While moving forward, the focus will turn to the pace at which interest rates will rise. So far, the ECB seems comfortable with market expectations.”

“Incoming data so far are broadly in line with the ECB’s macro view in September, but domestic uncertainty has intensified recently, especially in Italy, with potential spillover to other peripherals, in addition to increasing protectionism and stress in emerging markets, which could lead the ECB to reassess the balance of risks to the downside and reinforce its cautious mode going forward.”