Divyang Shah projects the December meeting.
The market is searching for clues as to the outlook for ECB policy but they are finding little answers from either ECB speakers or informed source based articles. We are likely to see the uncertainty persist into the December ECB meeting next week where the outcome is as predictable as what was seen in November.
The fact is that the ECB itself does not know and while the latest source story suggests that there is no consensus this could change once the ECB members gather around the table. This is what happened in November and the same risks are in play for the December meeting where we reiterate the propensity of the ECB under Draghi to surprise and further measures at the December meeting should not be ruled out.
We get the latest update on inflation this Friday with the flash release for November and next week we will get updated ECB staff projections for growth and inflation. Neither are likely to change the ECB view on inflation and it might be that they decide to keep the prospect of a negative deposit rate and a further refi rate cut in play even if we are talking about a further 10bp reduction.
More of a pressing matter is whether the ECB wants to strike early with regards to excess liquidity. We are already seeing a jittery market with regards to EONIA and the inability to fully sterilise the SMP only adds to concerns over the liquidity environment; even if such concerns are unfounded and likely related to month/year end considerations (see below)....MORE