The ECB kept all policy measures unchanged at today's meeting, which was in line with our expectations. However, Draghi had a hawkish tone during the Q&A session as he said the Governing Council discussed whether to remove the 'lower levels' from the forward guidance on policy rates.
In our view, a next step from the ECB when moving in a less dovish monetary policy direction is to remove the 'lower levels' from the forward guidance.
Draghi repeated that underlying price pressure remains subdued and we stick to our view that the ECB will extend its QE purchases beyond December 2017.
On the very short-end German yield curve, Draghi said the ECB was monitoring distortions.
The market reacted by sending German government bond yields higher by around 5bp beyond the 10Y point.
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