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The survey data continue to suggest the Eurozone economy is going from strength to strength, with the euro area PMI hitting a six year high this week. With inflation also having risen to 2% and close to the ECB's target, it is tempting to believe that current conditions might prompt the ECB to begin thinking about hiking interest rates. We suspect such expectations are premature and that the ECB will in fact prove to be remarkably dovish.
So deep is the ECB into non-standard territory that any normalisation of monetary policy is likely to be spread over many years. We think it unlikely that the ECB will contemplate raising the deposit rate while still continuing with its asset purchases. And we also detect little desire to announce an early taper. This suggests that the ECB will delay announcing the end of QE until the autumn, with any rise in the deposit rate still deferred until late-2018.
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