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Summary of Sell-Side Views on ECB Strategy Review (2/2)

ECB VIEW
  • Citi: Expects the outcome of the ECB strategy review to confirm what we consider to be already policy, in particular that it pursued a 2% symmetric inflation objective, with more aversion for continued undershooting than moderate overshooting. We expect however the ECB to fall short of explicitly committing to inflation overshoot but rather to convey a willingness to tolerate some overshooting. That would legitimise a reinforced forward guidance, with more emphasis on realised inflation, but would not suggest a return to a more forceful policy of yield curve control or capping. So whichever approach prevails in the outcome of the strategy review, it seems likely to us that it comes with what may appear as "dovish" announcements. But we stress that if we are right that the ECB falls short of an explicit commitment to run the economy hot, that dovishness is more form than substance, and may confirm a policy direction that was already implicit, as opposed to altering it in a meaningful way.
  • Goldman Sachs: "We think the direction of yields will be determined by risks around the ECB strategy review and the macro outlook, both of which we expect will push yields higher to year-end."
  • Nomura: "AIT would be the most dovish of scenarios and would mean even more monetary policy support than we currently expect, particularly with the ECB forecasting HICP inflation to undershoot 2% inflation for some years to come from 2022 onwards."
  • RBC: "we expect something that can be interpreted as being akin to an average inflation target without specifically saying so (see here) and stress that how strongly this wriggle room for overshoots is will be the crucial piece of the puzzle when the actual announcement comes."
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