Today’s meeting will be different from the previous meetings of the ECB. Close but below %2 inflation target changed after many years to just %2 in the last weeks. At the press conference, Lagarde will explain how this move will affect the monetary policy further on. But it will be explained more clearly because ECB is also planning to change its forward guidance language to be simpler.
(EURO CPI and CPI Target)
Monetary policy may become more dovish in case of overshooting the CPI target in the new era. But how dovish is still unclear. Bankers, most probably want to avoid an unnecessary tightening in case of a transitory overshoot and because of that inflation targeting changed. But it is unlikely that ECB will wait as much as FED to make a move.
Another key point for today’s meeting will be the PEPP. Bankers said they will re-evaluate the asset purchases in the September meeting before the target change. It is unclear the ECB will make any change or wait for the September meeting. Markets expect PEPP purchases to decrease at October. In any case, PEPP will most likely end in March. Lagarde hinted maybe another smaller program may take PEPP’s place but did not comment further. Lagarde may tell much more about it in today’s meeting.
In summary, ECB is expected to be dovish and that is mostly priced in already. A hawkish shock from the inflation targeting or PEPP may increase the appreciation of the Euro for the short term.
