ECB: The message was more dovish than expected - BBVA
|According to the Research Department at BBVA, the European Central Bank did not disappoint today and delivered a more dovish-than-expected message.
Key Quotes:
“The ECB has not disappointed: it will keep interest rates on hold until at least the end of this year and has announced another series of auctions of long-term liquidity. The dovish tone was retained as the statement reiterated that the GC stands ready to adjust all of its instruments, as appropriate, to ensure sustainable convergence towards the inflation target. Mr Draghi stressed that this package of measures are “adding accommodation” to its accommodative policy stance and the decision was taken by unanimity. But there there was debate within the GC as several members proposed extending the calendar of forward guidance to
March 2020 and other members discussed consequences of “low for longer” rates on banks.”
“On the economic outlook, the ECB mentions that the slowdown in international demand along with some country and sector specific factors have resulted in weaker-than-expected growth since mid-2018 that seems to extend into this year. As a result, the GDP growth forecast was revised sharply downwards by 0.6pp to 1.1% in 2019, but the revision was much more moderate for 2020, by 0.1pp, to 1.6% and it remained unchanged for 2021 at 1.5%, which implies that a reacceleration is still expected at some point during 2019. But, in contrast, Draghi highlighted also that the balance of risks remains tilted to the downside despite the downward revision, as today’s ECB’s decisions cannot solve global headwinds (Brexit, protectionism, emerging market vulnerabilities or the slowdown in China and the US), which are the main ones hitting the Eurozone.”
“All in all, the message from the ECB has been more dovish than expected, as the ECB reacted to the gloomier picture of the Eurozone economy with a combination of a delay in the rate hikes, significant cut in projections and a further TLTRO package that -though many details are lacking- provides more liquidity than expected.”
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