ECB relieved by recent Greek developments, but still cautious

As expected, the ECB meeting focused on the fall-out from Greece. President Draghi announced the decision to raise ELA funding by €0.9bn for one week (reportedly said at €89.9bn) and said he was sure both the ECB and the IMF will be repaid on 20 July (thanks to the bridge loan due to be announced by the EU on Thursday). There could be some room for QE purchases of Greek government bonds, although the conditions attached to the deal suggest this is not a near-term prospect. 

The monetary policy stance was unchanged. Draghi maintained a dovish tone and stated that the ECB stands ready to deploy all the instruments available within its mandate. The introductory statement mentioned for the first time that "the ongoing slowdown in emerging market economies continues to weigh on the global outlook". Unless there is a significant reaction in financial markets (implying a persistent unwarranted tightening in monetary policy) or a significant fall in the inflation outlook, there is no need to expect an increase in the size of QE. Draghi indicated that the ECB front-loaded its QE purchases by €3bn in May and June and a bit less in July, suggesting that August purchases should be close to €50-55bn. Regarding the recent expansion of eligible assets, the ECB has no "specific strategy", but the list of public entities can be expanded as needed. 

"We believe the ECB will have to expand its QE programme to non-financial corporate bonds next spring," says Societe Generale.