- Removal of pledge is a minor tweak.
- ECB still optimistic despite some loss of momentum.
- Tweaks down next year's CPI forecast.
The euro had been pushed below yesterday's lows prior to the ECB's initial statement. In it, the ECB removed the explicit pledge to buy more assets if needed. The euro recovered to new session highs and took out yesterday's high before reversing lower. This is a minor tweak to the forward guidance. With the broadest economic expansion since before the crisis and the risks of deflation successfully arrested, there is little chance conditions would quickly deteriorate that would require more aggressive easing.
The tweak is simply good housekeeping. It was no longer needed. That said, if there is some kind of shock, there should be no doubt the ECB would respond regardless of its explicit guidance.
Draghi and the ECB seem optimistic on growth. The staff revised slightly higher growth this year to 2.4% from 2.3%, while keeping the 2019 and 2020 growth forecasts unchanged at 1.9% and 1.7% respectively. Primarily survey data, but some other economic reports, like German factory orders, suggest there has been some loss of momentum at the start of the year.
The ECB staff also made a minor tweak in its inflation forecasts. This year's forecast was not changed at 1.4%. Next year's headline CPI was lowered to 1.4% from 1.5%. The inflation projection for 2020 was left unchanged at 1.7%. Draghi repeated a couple of times that the underlying rate of price pressures is subdued, noting that "victory can't be declared yet on inflation."
At the end of the day, there is little fresh we learned today. The asset purchases will continue through at least September. Draghi and the majority do not seem satisfied yet with the progress on inflation. Further tapering in Q4 still appears to be the most likely scenario.
This article was written by
Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.