The ECB Leaves Rates Unchanged and Confirms QE Schedule

The European Central Bank left rates unchanged and confirms QE schedule, which currently runs until the end of December. The initial monetary policy statement is pretty much unchanged from June and repeats that rates are “to remain at present levels for an extended period of time, and well past the horizon of the net asset purchases”, while QE can still be extended in size and duration if necessary.

The ECB sees a broad based expansion of economic activity but stressed that the recent volatility in the exchange rate is a source of uncertainty and requires monitoring. Inflation is still expected to rise gradually toward the ECB goal, but there are still now firm signs of a sustained rise in inflation. So a substantial degree of monetary policy accommodation remains necessary. Against that background, QE can still be extended. Draghi confirmed that the ECB will decide on the policy calibration for next year in the autumn, without going into detail.

Draghi said that the recovery remains dependent on monetary support. Asked about the discussion on the upcoming decision on the policy calibration for next year, Draghi stressed that there was broad dissatisfaction that inflation hasn’t moved higher and that the recovery still remains reliant on the expansionary monetary policy. He also stressed that while the exchange rate is not part of the ECB’s policy, it is clear that it has to be taken into account while adding that there was broad consensus that the EUR now requires monitoring with regard to the impact on the inflation outlook. The EUR/USD has surged to fresh highs above 1.2050.

Eurozone Q2 GDP Was Confirmed

Eurozone Q2 GDP was confirmed at 0.6% quarter over quarter as expected. The full breakdown, which was released for the first time, showed that growth was mainly driven by domestic demand, with household consumption adding 0.3% points to the quarterly growth rate and investment a further 0.2% points. Exports contributed 0.5% points, while imports detracted -0.4% points, leaving a slightly positive contribution from net exports.

Swedish Riksbanks Leave Policy Unchanged

Swedish Riksbank leaves policy and outlook unchanged, as expected. The central bank said in its statement that while “economic activity is strong and inflation is close to the target of 2%. Monetary policy needs to remain expansionary for inflation to continue to be close to 2%”. So, the repo rate was left steady at -0.50% and bond purchases will continue in line with the schedule published back in April. The repo rate is not expected to be raised before the middle of next year.