UBP | Unsurprisingly, the ECB kept its monetary policy unchanged. Corporate bonds buying are going to start on June 8th and the TLTRO on June 22nd.
The Eurosystem staff projections increased slightly its GDP forecast for the current year to 1.6% from 1.4%, kept unchanged its forecast for 2017 (1.7%) and marginally trimmed its forecast for 2018 to 1.7% from 1.8%.
In the shorter term, Q2 growth may be slightly lower than Q1, which is not a surprise. Nevertheless, the outlook remains positive on domestic demand and consumption in particular. Subdued prospects in emerging markets, the balance sheet adjustments in some sectors (namely the banks…) and sluggish implementation of structural reforms (see France and Italy…) were mentioned as factors dampening the economic recovery.
Forecasts for inflation are largely unchanged: only the 2016 figure was marginally higher to 0.1% from 0.2%. Despite the recently-announced stimulus package the 2017 and 2018 figures were stable at 1.3% and 1.6%, respectively.
President Draghi again stressed the importance of structural reforms, the need to raise productivity and to spend more on infrastructure. Once again, he called for more growth friendly fiscal policies.
For the moment, the focus remains on implementation of the new measures announced since the start of the year (TLTRO, corporate bonds purchase program). The fact that inflation forecasts were kept unchanged can be seen as a dovish signal and argues in favour of the ECB’s monetary policy remaining very accommodative for a very long period of time.
Dovishness has dominated in this meeting, as growth and inflation outlook appears lackluster, despite more aggressive stance recently adopted by the ECB. That gives the feeling that monetary policy has already probably reached its limits in terms of efficiency, putting the pressure on governments and fiscal policies.