BofAML | We have been among the most bearish on Euro Area inflation, expecting 0.9% post-Brexit inflation in 2017, versus consensus at 1.3%. This also applies to core inflation, where we expect a very mild trend over the next two years that would leave core inflation slightly above 1% by 2018. Still, markets are pricing declining inflation over the next few years.
UBS | The Swiss National Bank (SNB) reassessed its monetary stance at its quarterly March meeting today. After the European Central Bank (ECB) a week ago lowered its negative deposit rate for bank reserves by only 10 basis points to -0.40% and the main refinancing rate by 5 basis points to 0.00%, it became clear that the negative interest rate differential disfavouring the franc would not erode significantly.
The ECB has committed to reviewing its monetary policy at its March meeting, leaving the door open to implementing any (monetary) instruments it has at its disposal. Thus the central bank is acknowledging the increasing downside risks and the deterioration in inflation, failing to meet end-2015 expectations and discounting low or even negative CPI rates in the European Monetary Union over the coming months. But the question now is whether its commitment will satisfy the markets.
The market has already discounted that the ECB will announce new stimulus measures on December 3rd, modifying the current debt purchasing programme. But monetary policy only goes so far, and apart from the central bank’s measures, the Eurozone needs more public and private investment to recover its growth potential.
Estimations for the Eurozone’s inflation in September have been met: prices turned negative again after six months above zero. Some analysts think this time “the ball in not in the ECB’s court”.
While Yellen bet on increasing rates, China’s slowdown concerns Draghi, but he is not considering further stimulus for the time being, says Gabriel Marqués at Intermoney.