Ebury rules out changes in ECB's monetary policy

According to Ebury's analysts, The ECB's main interest rates, i.e. the deposit rate and the refinancing rate, will almost certainly remain unchanged this week.. They also do not think that the bank will surprise the market by giving the green light to rate cuts or announcing an extension of the Pandemic Emergency Purchase Program (PEPP). However, there is a risk of the euro weakening against the major currencies if the Governing Council uses this week's meeting as an opportunity to prepare the ground for additional monetary easing in the future - possibly at the next central bank meeting in December.

Since the last ECB meeting in September, the number of new cases of coronavirus infection in Europe has increased. Almost all the larger economies of the euro area now have record high levels of disease. Local anti-virus strategies have been introduced in the currency bloc countries, and stricter measures at the national level may be imposed if the level of infections is not contained. The re-imposition of more restrictive restrictions is reflected in October's PMI data, especially the service sector index, which fell to a five-month low of 46.2 points.

“Accordingly, we believe that the ECB will at least emphasize in its communication that the second wave of the pandemic poses a significant downside risk to the outlook and that policymakers' policies will have to remain accommodative in order to combat it. The CEO of Lagarde is likely to reiterate that the bank has the option to increase the stimulus in the future. In our opinion, it may suggest to the markets that this may happen at the next meeting in December, when the bank will publish its new macroeconomic projections. We believe that this type of step would extend the value of assets purchased under PEPP and extend the duration of the program, perhaps by about 6 months,” Ebury’s experts concluded.

(WBJ)