ECB QE tapering speculation is likely to be boosted in coming months, as euro area inflation is set to pick up considerably but we do not expect the ECB will announce tapering in 2017.
We expect the ECB to continue its EUR60bn monthly QE purchases as we enter 2018 for five reasons.
1. ECB remains too optimistic on core inflation - the low core inflation reflects very low core inflation in periphery countries
2. The ECB's wage forecast is still hopeful - German wage growth is stable and we expect labour market slack to keep periphery wages low.
3. According to Draghi ECB's inflation forecast is 'not really' close to 2.0% - QE is likely to be extended if projection is lowered again
4. Tapering would damage the recovery in periphery countries - weaker GDP growth would delay further any increase in core inflation.
5. High political uncertainty should keep the ECB on the sideline - elections in 2017 could bring a very new situation to the euro area.
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