The ECB did not deliver any surprises at today's meeting. The main conclusion was that the ECB 'will continue to look through changes in HICP inflation if judged to be transient and to have no implication for the medium-term outlook for price stability'.
In our view, core inflation will stay below 1.0% on average this year, as wage pressure will stay subdued, particularly in the periphery countries. Hence, we expect the ECB to continue its QE purchases in 2018 (see Five Reasons the ECB Will Not Announce QE Tapering in 2017, 4 January).
The ECB released further details of how it will buy assets with yields below the deposit rate but the additional information was very limited. In our view, purchases of bonds yielding below the deposit rate are likely to be needed in Germany, Finland and the Netherlands. In Germany, we estimate that at current yields 15% of government bond purchases in 2017 will have to be conducted below the deposit rate (see ECB QE: How much will the ECB have to buy below depo in Germany in 2017?, 11 January).
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