ECB leaves door wide open for more QE

Higher potential growth unleashed by structural reforms would enable the ECB to be accommodative for longer to avoid increased labour market slack exerting unwelcome short-term disinflationary pressures. At its regular monetary policy meeting, the ECB kept policy rates unchanged but decided to increase the issue share limit from 25% to 33% (subject to case-by-case verification that this would not create a case of blocking minority power). While it clearly stated that this is aimed at a smooth implementation of the current asset purchase programme, this indicates that additional QE measures could be deployed to lean against a revised downward inflation outlook. 

"The relationship between economic activity of euro area, wages and underlying inflation is still strong and will continue to be dictated by policy makers, it also implies that any economic recovery-driven nominal wage increase will likely take time to unfold as the number of workers still effectively competing in the labour market remains sizeable. Therefore, we remain of the view that both the ECB and national government need to maintain their policy path", says Barclays. 

President Draghi mentioned that there was no discussion about a potential deposit rate cut. 

"In light of the weak inflation outlook and the ECB's downward revisions, the ECB will need to ease monetary policy further before year-end, most likely by extending its QE programme. Although a cut is assumed to be the rate of the deposit facility would probably be more efficient in weakening the euro", says Barclays.