ECB may keep monetary policy loose for a long-time

- "Most US macro-economic data continued to disappoint last week. This week’s data (especially the ISM manufacturing index and the US labour market report) will be very important for the direction of sentiment and maybe also for the Fed’s willingness to adopt further QE (p.2, p.3 & p.4)."
- "This week’s focus is on the US ISM manufacturing index on Wednesday and the labour market report on Friday, on the euro zone CPI estimate tomorrow and the ECB meeting on Thursday, and on the UK PMIs (p.2, p.3 & p.4)."
- "The Chart of the Week shows lending by the ECB to credit institutions in the 11 largest euro zone countries and to credit institutions in Portugal, Ireland, Greece and Spain. On Thursday, all eyes in the euro zone will be on the ECB meeting. Although Q2 GDP growth was quite strong, uncertainty about the sustainability of the economic recovery has increased since the last ECB meeting on 5 August. Given low inflationary pressures, official policy rates will probably have to remain at extraordinary low levels for a very longperiod, in particular for countries that face severe fiscal tightening. The ECB is therefore likely to remain very cautious regarding economic prospects. Moreover, the Chart of the Week suggests that credit institutions in the so-called PIGS countries have become increasingly reliant on the ECB’s refinancing operation: they accounted for more than 40% of total ECB lending to credit institutions in June. As such, the ECB is expected to keep the fixed rate, full allotment procedure for regular refinancing operations until the first quarter at least, as was already signalled by President Weber 2 weeks ago. All in, then, the ECB will likely keep monetary policy loose for a very long-time, in our view."

NIBC Markets Roundup 20100830

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