ECB: High bar for new easing, low bar for upside inflation surprises – TDS

By FXStreet James Rossiter, Senior Global Strategist at TD Securities, considers that the new projections from the European Central Bank staff set a potentially high bar for new policy easing and a low bar upside surprises in inflation.

Key Quotes:

“The ECB’s Staff Macroeconomic Projections significantly revised down the profile for inflation in 2016 and 2017. But the forecast contains numerous assumptions that set a low bar for the ECB to be surprised on the upside by the data, implying a potentially high bar for new policy easing.”

“The Governing Council will be happy to see these positive inflation surprises revealed, and President Draghi will feel justified by his statement that they are done cutting rates.”

“Our long-held belief that the ECB would significantly revise down their inflation forecast materialised yesterday with the release of the ECB’s Staff Macroeconomic Projections. The 2016 annual inflation forecast was cut from 1.0% to just 0.1% – at the bottom of the 0.1% to 0.5% range we envisioned. We see some strategic reasons for such a dramatic cut to the inflation forecast.”

“Digging into the details of the ECB’s forecast, however, reveals an inflation forecast with risks all tilted to the upside.”

“While there continue to be many downside risks …read more

Source:: FX Street