ECB likely to leave rates unchanged – Nordea

According to analysts at Nordea Markets, ECB will leave rates unchanged at Lagarde’s second policy meeting and focus will be on the strategic review.

Key Quotes

“We change our forecast and no longer expect further easing! Risks are tilted towards slightly higher rates as an immediate market response.”

“We expect the key ECB interest rates to be kept unchanged at next week’s meeting at -50bp and 0bp for the deposit rate and the main refinancing rate, respectively, which is in line with consensus and market pricing.”

“Will Lagarde’s ECB be less dovish than Draghi’s ECB? A month ago, we would probably have said “no”. Now, it’s a soft “yes, probably”. Consequently, we change our forecast and no longer expect additional policy easing!”

“From a strategic point of view, we still see risks skewed to the dovish side. Markets have largely given up pricing further easing over the coming year, and currently price in a clear risk of a rate hike next year, which seems premature. It will not take much weaker numbers for the markets to resume speculation about additional easing. After all, the ECB’s forward guidance retains an explicit easing bias, which is unlikely to be removed at this point.”