Intesa SanPaolo : The monetary policy meeting on 16 July is very likely to be entirely interlocutory, as economic data are improving, and the latest measuresare proving successful…
– There are no expectations for the ECB Governing Council meeting scheduled on 16 July to end with monetary policyannouncements.
– The Eurosystem is still implementing the measures introduced in response to the pandemiccrisis, and the latest TLTRO III auction elicited strongthe demandfor funds, following the slackening of the conditions to access the programme. The PEPP has already been extended until June 2021, and its plafond has been increased.
– Economic data show that economic activity recovered in May and June, while closing the quarter at levels still well off the norm. Financial conditions have improved on several fronts. The discussionon Next Generation EU is guiding fiscalresponse in the ECB’s intended direction.
– At most, the Council could decide to step up the share of excess reserves exempted from payment of the negative rate, raising the multiplier applied to required reserves from 6x to 8x.
– Beyond the near term, however, the outlook remains very uncertain. If the recovery proves to be insufficient, or if economic activity is newly disruptedby COVID-19, the ECB could be forced to act again, with measures complementing thefurtherincrease in fiscal efforts. On 10September, the Governing Councilmay have greater visibility in this on this front.
– Should new stimulus be required, we believe it will continue to be injected through asset purchase programmes, with policy rates left unchanged. The next decision to take will be whether or not to renew the temporary increase of the APP upon expiration at the end of the year. Now that the PEPP is fully operational, the APP is likely to return to its ordinary regime.