Confidence, persistence, prudence


These three words resume the introductory speech delivered by Mario Draghi on June 27th at the ECB Forum on Central Banking in Sintra. His speech led to a sharp move in bond markets: 10-year yields rose from 0.25% to 0.47% over the course of only a few days and are now approaching year-to-date highs.

Mario Draghi is confident that the measures undertaken are working and that reflationary forces have replaced deflationary ones. He highlights that the accommodative monetary policy should persist to ensure that inflation targets are met, and that prudence will guide very gradual monetary Policy normalisation.


Through Mario Draghi’s words, the ECB is preparing the markets for monetary policy changes further down the line. The description of an improving economic picture and insistence on the temporary nature of the factors weakening inflation are a clear signal that monetary policy could very gradually move tighter.

Unless risk aversion levels rise sharply this summer, in autumn the ECB will probably announce a gradual reduction in its asset purchases from the start of 2018 to finally conclude them midyear. The subsequent question will be raising benchmark rates. This will depend on the path of underlying inflation, which is expected to turn back up towards the ECB’s inflation target.

The opinion expressed above is dated July 3rd, 2017, and liable to change

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