The reasons for which the ECB will exit ultra-loose monetary policy measures

The essential

The ECB’s policy change will be one of the main themes of market in H2 2017. The ECB has already amended its communication at the Governing Council of June (withdrawal of the reference to the rate cuts, balanced risks on the outlook of growth). Recall that since 2011, ECB has undertaken unconventional monetary policy in a bid to curb the deflationary spiral (LTRO, QE). These measures avoided triggering a vicious circle of deflation by significantly improving financing conditions for banks, corporations and governments alike.

Underlying inflation remains low in the euro area but this will not prevent the ECB from exiting its ultra-accommodative measures, for several reasons: improved economic prospects, constraints related to the implementation of the QE that will become more pressing in 2018, profitability of the banking system, risks with regard to financial stability and excessive indebtedness. The communication of the ECB will therefore be gradually less accommodating in the coming months.