ECB’s primary objective: Inflation below, but close to, 2% over medium term - Westpac

Tim Riddell, Research Analyst at Westpac, suggests that a reminder of ECB’s primary objective highlights why, with credit demand and growth so low, ECB has extended its QE.

Key Quotes

“Core inflation, despite the rebounding of headline CPI, is stagnating under 1%, rather than pushing towards 2%. Though Draghi gave a more neutral economic outlook, he stressed that risks are mostly to the downside. The lack of any core inflation will keep ECB QE firmly in place.”

“Italy’s political and financial woes have not induced Eurozone existential issues, but the continued attempts of Monte dei Paschi to avoid a bail-in may weigh on the region and continue to stress Target 2 balances. Though under the market’s radar, this is a persistent concern.”

“Deflation stalks Switzerland and if safehaven inflow is deterred, NIRP will keep CHF on a sliding track.”

“As previously stressed, resumed USD strength should see EUR and CHF slide to test 18-month extremes.”