Mario Draghi's focus on lack of information at the ECB meeting last month was, in our view, a way for him to buy some time and despite the recovery is set to gain ground, we expect the ECB to ease again due to low inflation.
The ECB is in a new monetary policy regime, where deviation from the price stability target is decisive for the interest rate setting. Previously, economic development played a bigger role in setting monetary policy.
This implies that the ECB will stay on an easing bias even though the recession has ended. This has already been seen as Draghi has cut rates twice while PMIs have been on an upward trend.
Draghi has argued that the low core inflation is due to relative price adjustment in periphery countries, but inflation is also low in core countries. Additionally, the ECB has said that it should respond to longer-lasting supply shocks.
In our final upcoming document, we conclude that the ECB will ease again and we discuss the possible tools together with the timing of more ECB action.
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