Afternoon analysis 08.09.2016

The European Central Bank has not modified its monetary policy and only slightly decreased the next year forecasts. After a strengthening during the middle of the session, the zloty went back to its opening levels after Draghi's conference.

No changes from ECB

It's worth noting the market reaction after the ECB meeting. The EUR/USD went above 1.1300, mostly because of the euro's strengthening. Profitability of the euro zone's treasury bonds are higher as well. This means that the market is estimating the QE continuation slightly lower than before the ECB meeting.

However, despite that the ECB did not extend the QE operation, it's worth keeping in mind that the Bank may do it soon. The press announcement states that, “monthly assets purchase worth 80 billion euro is to be implied by the end of March 2017, or longer if necessary, until the Council would not consider inflation path as adjusted.”

Therefore, it's basically certain that these changes would occur within the next months. After all, the program cannot be finished so suddenly. This would be a real shock for the debt instrument market, as well as currencies.

Perhaps a reason that stopped the ECB from the QE extension, was a small negative revision of the economic growth and inflation for 2017. It was at the level of 0.1 percentage point and has taken down two basic macroeconomic indexes to the level of 1.6% and 1.2%, respectively. It's possible that Draghi wanted to wait with further decision for new macro data. That way, he would have space to adjust the monetary policy in case the data would be clearly worse.

However, it seems that the QE will become extended beyond March 2017, regardless of the data. Moreover, the matter of maximum involvement in particular country's treasury bonds at the level of 33%, as well as minimum profitability of purchased treasury instruments, may be modified soon.

We can assume this from the announcement that states, “Presidents' Council has recommended the appropriate committees to estimate the options that would allow to implement our assets purchase program properly.” It's difficult to say whether this modification will happen in October or in December. In July, the ECB suggested that a review of available instruments will be made as soon as the new macroeconomic projections are published (today). As we can see, this review has been postponed to the forthcoming months.

In conclusion, the lack of decision regarding the QE doesn't change much. We don't expect it to be a reason for a significant appreciation of the euro. This is because the assets purchase will most likely be extended beyond March 2017 by the end of this year. It's also possible that the conditions regarding the ECB in particular bonds issue, as well as purchase of instruments with profitability below deposit rate, will be modified at one of two forthcoming meetings. This perspective should stop the EUR/USD from growing, at least not due to an increase pressure from the euro.

No changes on zloty

The lack of decision today does not change much regarding the zloty. Theoretically, resignation from extending the QE may be negative for the PLN. However, due to the fact that it's almost certain that this decision will be made later this year, the market's reaction should not be too nervous. Therefore, we don't expect a clear increase in the EUR/PLN in the coming hours/ Moreover, if Moody's leaves Poland's rating at an unchanged level, we continue to expect the euro to go below 4.30 on Monday.