ECB likely to stay on hold until September 2019

The European Central Bank is expected to carry on with its newly signalled policy, signifying that the QE would be lowered after September and ended in December. According to a DNB Markets research report, the rates are likely to stay on hold until September 2019. The economic backdrop is mixed, with weak economic data extending well into the second quarter. In spite of growing headwinds, the outlook is expected to remain positive and economic growth is likely to come in above its potential, which should lead to higher capacity utilization and moderate upward pressure on wages on consumer prices, stated DNB Markets.

“We expect the ECB to hike the deposit rate by 15 basis points to -0.25 percent. Following the September hike, we expect rates to remain on hold until March 2020, when we expect both the refi rate and the deposit rate to be raised by 25 basis points”, added DNB Markets.

The euro area HICP inflation had come in at 2 percent on a year-on-year basis, up 0.5 percentage points from April. The acceleration was mainly due to increased transport prices and higher prices on housing and utilities. Core inflation, which strips out prices on energy, food, alcohol and tobacco, rose 0.3 percentage points to 1.1 percent. Looking ahead, inflation is expected to rise gradually, underpinned by slightly higher wage growth due to tightening of the labor market and the overall cyclical development, which tend to drive up price growth on cyclical consumer goods, stated DNB Markets. Moreover, high energy prices are expected to push up transport and gas prices in the near term.