Less urgency in taking further actions does not mean ECB tapering

According to the ECB, markets have over-interpreted the deletion of the mention that the “Council will act by using all the instruments available”.

This removal has been justified (1) to communicate reduced tail risks; and (2) to signal that there is no longer a sense of urgency in taking further actions while maintaining an accommodative monetary policy. If a slower path of asset purchase began in April with €60bn per month versus €80bn prior, it is important to recall that the extension of the program to December actually beat expectations (€540bn vs €480bn initially expected).

On the macro side, we note that the inflation rate declined to 1.5% YoY in March after 2.0% observed in February. First, services contribution decreased from 0.6 to 0.4 point while the contribution from food and energy declined by respectively 0.1 and 0.2 ppt. Core price pressures remain thus anchored at 0.9%, constrained by a gradual recovery in wage dynamic with muted compensation per employee. Also, a rebound is expected in April supported by a seasonality effect. A durable trend is nonetheless not observed at this stage despite a slight improvement in labor market conditions with a decrease of the unemployment rate to 9.5%.

Gero Jung – Chief Economist – Mirabaud AM