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May 23, 2018
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QE has been a controversial policy wherever it has been implemented, including in the euro zone. With the economy having expanded at the fastest rate in a decade in 2017, the ECB has already begun to scale back its asset purchases from EUR80bn per month at the peak to EUR30bn currently. The ECB is due to make its next decision on QE this summer. Our baseline expectation is that the ECB will announce in July the intention to finish QE at the end of this year. That will be a signal to markets and the economy that it is just a matter of time before the ECB’s other controversial monetary policy – negative deposit rates – is also withdrawn. [more]
PROD0000000000469254 1   |    May 23, 2018Thematic Research This is an excerpt of Focus Europe: ECB: 'SAPI' and the QE exit decision , published on May 23, 2018. May 23, 2018 ECB expected to finish QE end of this year QE has been a controversial policy wherever it has been implemented, including in the euro zone. With the economy having expanded at the fastest rate in a decade in 2017, the ECB has already begun to scale back its asset purchases from EUR80bn per month at the peak to EUR30bn currently. The ECB is due to make its next decision on QE this summer. Our baseline expectation is that the ECB will announce in July the intention to finish QE at the end of this year. That will be a signal to markets and the economy that it is just a matter of time before the ECB’s other controversial monetary policy – negative deposit rates – is also withdrawn. We have looked at the framework within which the ECB will make the decision to exit QE. The ECB needs to believe that a sustained adjustment in the path of inflation has been achieved. There are three forward-looking criteria that need to be satisfied to make this judgement. The ECB needs to (a) believe that inflation will converge back to its objective of below but close to 2%, (b) be confident about the convergence of inflation back to the objective and (c) believe that convergence will be resilient to the cessation of QE. A few months ago the ECB describe the judgement as being “close”. On the basis of the evidence, we agree. However, as close as the ECB is to taking this historic decision to end QE, the risk is that the exit from QE has to wait a little longer. The reason is not related to Italy – the three exit criteria are designed to de-politicise the QE exit decision. The reason is the need to understand whether the unexpected slowdown in economic growth is temporary or not and whether still subdued core inflation means forecasts for normalisation remain too optimistic. Our base line view of an QE exit announcement in July is conditional on GDP growth re-accelerating in Q2, core inflation moving back to c.1% after Easter and an unwarranted tightening of financial conditions — for example, because of uncertainty triggered by Italy’s new government — being avoided. The dovish risks include a delayed exit decision — potentially until September — a temporary further extension of QE at a slower rate and a decision to trade off ending QE against a strengthening of forward guidance. For important disclosure information please see: https://research.db.com/ Research/Disclosures/Disclaimer Authors www.dbresearch.com Mark Wall +44(207)545-2087 mark.wall@db.com Marc de-Muizon Deutsche Bank Research ECB expected to finish QE end of this year 2   |    May 23, 2018Thematic Research © Copyright 2018. Deutsche Bank AG, Deutsche Bank Research, 60262 Frankfurt am Main, Germany. All rights reserved. When quoting please cite “Deutsche Bank Research”. The above information does not constitute the provision of investment, legal or tax advice. Any views expressed reflect the current views of the author, which do not necessarily correspond to the opinions of Deutsche Bank AG or its affiliates. Opinions expressed may change without notice. Opinions expressed may differ from views set out in other documents, including research, published by Deutsche Bank. The above information is provided for informational purposes only and without any obligation, whether contractual or otherwise. No warranty or representation is made as to the correctness, completeness and accuracy of the information given or the assessments made. In Germany this information is approved and/or communicated by Deutsche Bank AG Frankfurt, licensed to carry on banking business and to provide financial services under the supervision of the European Central Bank (ECB) and the German Federal Financial Supervisory Authority (BaFin). In the United Kingdom this information is approved and/or communicated by Deutsche Bank AG, London Branch, a member of the London Stock Exchange, authorized by UK’s Prudential Regulation Authority (PRA) and subject to limited regulation by the UK’s Financial Conduct Authority (FCA) (under number 150018) and by the PRA. This information is distributed in Hong Kong by Deutsche Bank AG, Hong Kong Branch, in Korea by Deutsche Securities Korea Co. and in Singapore by Deutsche Bank AG, Singapore Branch. In Japan this information is approved and/or distributed by Deutsche Securities Inc. In Australia, retail clients should obtain a copy of a Product Disclosure Statement (PDS) relating to any financial product referred to in this report and consider the PDS before making any decision about whether to acquire the product.
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