ECB: By September meet Draghi should be able to make a better informed decision - Rabobank

Bas van Geffen, Quantitative Analyst at Rabobank, notes that yesterday the ECB left its key interest rates and asset purchase programme unchanged which didn’t move markets much.

Key Quotes

“At the September meeting, when the GC will have new staff forecasts at its disposal, Draghi and his fellow GC members should be able to make a better informed decision. Indeed, Draghi referred to this meeting several times, stating that the Governing Council will then re-evaluate all new evidence. Given the number of downside risks that were mentioned, we believe that action in the September meeting (i.e. a 10 bps cut in the deposit rate) remains a realistic possibility.

However, President Draghi did not go as far as previous meetings in signaling any action (recall how he all but promised action prior to the December 2015 meeting). Instead, he was remarkably neutral when looking forward to September, and very tight-lipped when asked about potential changes to the asset purchase programmes. In that sense, the upcoming meeting promises to be a very data-dependent one.

Evidence of one of the key uncertainties Draghi highlighted –impact of the Brexit vote on the economy– will slowly start dripping in. Yesterday, it became clear that June UK retail sales disappointed, growing at only 3.9% on y-o-y basis (excluding gasoline), well below expectations (4.8%). Whilst it would be easy to blame Brexit for this decline, recall that the referendum didn’t take place until late in the month, so only a fraction of these sales data were post-referendum. Although some reservations to spend ahead of the polls probably did weigh on June data, July sales are therefore likely to show even more of a slowdown. Indeed, the most recent consumer confidence surveys do not bode well.”