ECB Preview October 2020

Ahead of Events, Or At Their Mercy?

• The ECB must decide whether to wait until the December meeting to get over the hump of upcoming event risks and ascertain the impact of the recent tightening of social restrictions, or act now to ward off intensifying headwinds to the fragile recovery.
• On balance, the ECB is likely to hold fire for now and instead pave the way for further easing in December when there will be more clarity on economic conditions and risk outcomes. The considerable amount of capacity left in the expanded PEPP envelope further strengthens this baseline scenario.
• Nonetheless, the risk of further policy easing in October is non-negligible The coronavirus crisis is moving faster than policymakers are able to divine the associated economic impacts, elevated uncertainty risks becoming self-fulfilling and the inflation path is under grave threat.