09 MAR


Fixed Income , Nicolas Forest , Asset Class

A first step towards the exit

After a month of slightly disappointing cyclical data, Mario Draghi’s forward guidance comments regarding economic outlook and the ECB asset purchase policy were eagerly awaited by the markets.

Firstly regarding economic outlook, revised anticipated growth and inflation figures reserved no major surprises.

The ECB nonetheless raised growth outlook for 2018 from 2.3% to 2.4% and 2019 inflation from 1.4% to 1.5%.

With core inflation coming in at 1% yesterday, the ECB is still far below its 2.00% target.... which it is not expecting to reach even in 2020.

In his comments on the asset purchase programme, Mario Draghi omitted any reference to potentially increasing the size of the balance sheet if required.

He has therefore turned away from his accommodating stance and is preparing the markets for the withdrawal of quantitative easing in December - a first step towards the exit.

As he approaches the final year of his tenure, Mario Draghi starts the ball rolling towards an exit strategy, which should lead to a progressive rise in the deposit rate during 2019.

This gradual strategy will be implemented all the more cautiously as the risk of protectionism is now threatening to undermine the sustainability of the recovery.