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What to expect from the ECB later today

A fictitious meeting for December?

Well, for the most part maybe. No policy changes are expected as the ECB continues to slowly reduce the PEPP by March of next year. I would always say they will keep this timeline in place just to be safe rather than sorry.

But how that plays out in the reality of more persistent inflation and slower growing conditions, seems like a bet policymakers are willing to take as they will bite the bullet and stick to the ‘transient’ narrative. .

Any decision on how to pursue PEPP flexibility is still up for debate, so don’t expect immediate decisions today. December is probably the time to hear something more concrete with the likelihood that the ECB will increase APP purchases, as one would expect.

So what else is in today’s meeting / announcement?

It’s all a matter of language for the most part. In that regard, I don’t see much to change from the statement given that they will kick the box in December.

As such, watch out for Lagarde’s press conference and the references to inflation and the economy. I would expect Lagarde to recognize the associated risks on both fronts, but still maintain the current position that inflationary pressures – or at least the factors driving them – are temporary in nature, although any foundation is likely less. only closed in summer.

I would also expect Lagarde to expose downside risks to the September forecast, which will likely be revised down due to lingering concerns about inflation and supply bottlenecks.

An interesting point to watch will be how much she wants to push market prices back during any ECB rate hike. We have heard several policymakers reiterate that market expectations are not in line with the ECB’s forward guidance and it will be interesting to see how much Lagarde wants to insist or back down on this issue.

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