13 Jul 2015
ECB preview: Contingent to Greece - Deutsche Bank
FXStreet (Bali) - Mark Wall and Marco Stringa, CFA, Economists at Deutsche Bank, shares their view on the upcoming ECB monetary policy meeting, noting that decisions are now contingent on Greece.
Key Quotes
"The ECB Governing Council meets again on 16 July. The ECB’s words (and potential actions) over the next week depend critically on whether Greece reaches an agreement with Europe this weekend. It is a close call. On balance we assume an agreement will be reached, although implementation will remain challenging."
"If we are right and Greece reaches an agreement this weekend, ELA is likely to increase (modestly) and next Thursday’s press conference should see Mario Draghi remain on-message: the ECB is fully committed to its QE programme through to September 2016, and the risks are tilted to more QE not less with the ECB willing to respond to an unwarranted tightening of financial conditions."
"There is some potential for a mildly more dovish message on inflation given the decline in oil prices over the last couple of months, although oil prices should not affect the medium-term view. We would be a little less surprised by dovishness on inflation than a more positive message on the recovery."
"If we are wrong and Greece fails to reach an agreement with Europe this weekend, the ECB will face a momentous decision to withdraw ELA. This would increase the likelihood of Grexit, but it would still not be inevitable. We would expect the ECB to ring-fence the rest of the euro area if there were an unwarranted tightening of financial conditions due to contagion. An ECB response would likely consist of an increase in QE and possibly a supplementary LTRO."
Key Quotes
"The ECB Governing Council meets again on 16 July. The ECB’s words (and potential actions) over the next week depend critically on whether Greece reaches an agreement with Europe this weekend. It is a close call. On balance we assume an agreement will be reached, although implementation will remain challenging."
"If we are right and Greece reaches an agreement this weekend, ELA is likely to increase (modestly) and next Thursday’s press conference should see Mario Draghi remain on-message: the ECB is fully committed to its QE programme through to September 2016, and the risks are tilted to more QE not less with the ECB willing to respond to an unwarranted tightening of financial conditions."
"There is some potential for a mildly more dovish message on inflation given the decline in oil prices over the last couple of months, although oil prices should not affect the medium-term view. We would be a little less surprised by dovishness on inflation than a more positive message on the recovery."
"If we are wrong and Greece fails to reach an agreement with Europe this weekend, the ECB will face a momentous decision to withdraw ELA. This would increase the likelihood of Grexit, but it would still not be inevitable. We would expect the ECB to ring-fence the rest of the euro area if there were an unwarranted tightening of financial conditions due to contagion. An ECB response would likely consist of an increase in QE and possibly a supplementary LTRO."