BofAML _ perspectivas semanales para Europa

Redacción - Lunes, 27 de Marzo

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Europe Economic Weekly: Timing is of the essence • We think rates will stay put in 2017. If outlook risks fully balance, the ECB could drop the "lower" already in June. -  By September when discussing QE ECB would need to signal the possibility of a reversal, which would materialize in 2018. •  UK: We raised our inflation forecast 10bp to 3.2% peak in October. We now see BoE rates on hold for the next two years.

This week we take a deep look at the depo rate controversy and whether it should/could be hiked before QE ends. Our answer is perhaps, but it requires the correct timing and packaging. You could justify it by saying it didn't deliver what was expected in terms of improved macro outlook: we were at the point in which cutting rates were counter-productive. A refined version of that is that even if the central bank was correct before, but as the cost of negative deposit rate rises as QE lasts, this would not be the case if QE continues. There could be a sound justification for raising the deposit rate only if QE continues after the current "soft deadline" of December 2017. Still, communication would be very tricky and the point in the cycle does not justify any move now. We thus think that policy rates will stay on hold in 2017. By September, when discussing potential continuation of QE, the ECB would need to signal the possibility of a reversal in the sequencing (as long as QE is extended) and would only materialize in 2018.

In our weekly view we argue nominal activity has probably peaked this year. We take another look at the signals from PMIs. We also argue that some of the downside risks we have highlighted before for inflation in the short run are already materialising. We now expect Euro area inflation at 1.7% in March (1.68). In our hot topic we tackle whether the recent behaviour of oil prices and uncertainty over fiscal impulse in the US could throw the recovery of inflation into doubt. We argue that the progressive closure of the output gap should ensure a modest pick-up in global core inflation, i.e., inflation should continue to recover once any potential temporary shock fades.

This fits well with what we saw in the UK this week. Inflation surprised on the upside with the surprise being in core inflation. This is sterling's doing and that is now spreading to other goods, a process that should continue through this year. Together with a more hawkish BoE last week, it means we dropped our forecast for the BoE to cut rates again. Instead we now see BoE rates on hold for the next two years. Rate hikes still look unlikely to us because we expect growth to slow markedly. But the BoE signalled they are running out of patience: August could be a 'live' meeting if the economy holds up.

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