ECB meeting: no sense of urgency

As widely expected, the ECB left policy rates and the envelope of its purchase program unchanged at yesterday’s policy meeting. The overall tone of the press conference was rather balanced, and in any case less dovish than we had expected. Neither the drop in core inflation in August nor latest FX developments seem to have caused much unease in the Governing Council. There was consequently no hint at additional policy easing at the upcoming meeting. Watching “carefully” the exchange rate : Not surprisingly, several question in the press conference focused on the recent appreciation of the euro and the Fed’s new policy strategy. The GC “extensively discussed” recent currency movements and will “monitor carefully” to what extent a further appreciation will imply downside risks to the inflation outlook. But Mrs Lagarde did not give the impression that the GC was overly concerned about the exchange rate at this point. The Governing Council consequently did not discuss any change in its policy instruments at today’s meeting. Overall, the meeting gave little away in terms of future actions by the ECB. Mrs Lagarde did not provide any hint with respect to potential changes of the envelope of the PEPP program but stressed that “under current circumstance it is certainly very likely that the full envelope of the PEPP will be used”. We continue to expect an increase in the PEPP at the December meeting.