Article / 07 August 2014 at 8:04 GMT

ECB Preview: See you next month!

Head of Macro Strategy / Saxo Bank
  • Consensus expectation is for no ECB action
  • Remember that TLTROs kick off tomorrow
  • Draghi will assess TLTRO progress before new move

By Mads Koefoed

The euro area economy continues to recover at a modest pace while disinflation still reigns in the summer lull. The Eurocoin indicator, which can be seen as a proxy of monthly economic activity, printed 0.27 in July, which implies that the economy rose roughly one-fourth of a standard deviation faster than trend last month. 

But while July did see (slight) above-trend growth, it was nevertheless a slower pace than observed in the previous seven months. Meanwhile (dis-)inflation eased lower in July to 0.4 percent from 0.5 percent, the lowest rate of inflation since October 2009. Core inflation was also modest at 0.8 percent unchanged from June. Bank lending to non-financials continued to decline in June, but did so at a 2.3 percent annual rate, the smallest since December 2012. Hence, even if bank lending is still contracting the trend is encouraging.


Considering that the economy, including inflation, is behaving in line with the European Central Bank's expectations there is no argument for further actions at today's meeting. And the argument for non-action gains even more credibility when you take into account that the first of a series of targeted longer-term refinancing operations (TLTRO) will begin tomorrow with the application by lead institutions, though it will not kick off in earnest until September with the announcement of the first TLTRO on September 16. The ECB is very likely keen to see the impact of these TLTROs before contemplating further intervention. Hence, this may well be the ideal time to skip the ECB meeting and head to the beach.

ECB key policy rates

The consensus expects (and we agree) the ECB to announce that the main refinancing rate will stay at 0.15 percent, the deposit rate at -0.1 percent and the marginal lending rate at 0.4 percent. In other words, no change. Furthermore, there is no reason to expect anything else from the ECB at this point. An ABS (asset backed securities) programme is still some way off, we believe, and with the first TLTRO coming up, this ECB meeting promises to be one of those which comes and goes without anybody taking notice.


The ECB will want to assess the impact of the TLTROs before shifting an inch
Photo JChambers Thinkstock
-- Edited by Clare MacCarthy

Mads Koefoed is head of macro strategy at Saxo Bank


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