Why the ECB cannot exclude QE and why it needs to be big

Abn Amro
Door september 11, 2019 09:59

Why the ECB cannot exclude QE and why it needs to be big

ECB View: A policy package excluding large-scale QE will not close the inflation gap – Market doubts about whether QE will be included in the ECB’s stimulus package in September have built over recent days and have helped to fuel the correction in government bond markets. These doubts reflect hawkish comments from mostly hawkish ECB officials and therefore we do not place too much weight on them. That aside, the market consensus of analysts is that any QE programme will be relatively small (around EUR 40bn for 12 months). We think that QE will be included in the package and that it will be big (at EUR 70bn per month for 12 months). Quite simply, a policy package that does not include QE will have no chance of closing the gap between the ECB’s projection for inflation at the end 2021 and the ECB’s inflation aim. The current projection for inflation at the end of the forecast horizon is 1.6%, but it would very likely be revised downwards in the absence of stimulus. At the same time, ECB President Draghi clarified that the ECB is aiming for inflation of 1.9% in the July press conference. Effectively, the ECB might be looking to close an inflation gap of around 0.4-0.5 percentage points. 

Abn Amro
Door september 11, 2019 09:59



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