New ECB call: We expect a first rate hike of 20bp in December 2019, i.e. after Mario Draghi's reign ends (October 2019). Previously we expected 10bp in June 2019.
We postpone our estimate of the ECB's first rate hike due to increased downside risks to growth and inflation and we believe the ECB will revise its growth forecast down in its next staff projection in June.
Our key takeaway from the March ECB meeting is that the ECB will be reactive and not proactive . This was reflected in the accounts, which six times mentioned 'patience and persistence' regarding monetary policy. Added to this stance is an inflation profile that continues to be subdued and, consequently, we expect ECB to prefer taking a cautious stance.
The still-solid growth dynamics and no deflation risk support ending QE in 2018but, in our view, a rate hike will come only once inflation is on a self-sustained path towards the target of 'below, but close to, 2% over the medium term'.
Our updated inflation expectations, which also include 2020, are 1.4%, 1.4% and 1.5% for 2018, 2019 and 2020, respectively. We expect core inflation to be 1.5% in December 2019.
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