Given our forecast of persistent low eurozone growth and inflation, we have been forecasting another package of measures from the ECB by this point for some time and the delivery is no surprise - not least with the ECB's recent communication flagging the preference for a combination of measures simultaneously.

Before he says goodbye and good luck, Mario Draghi has continued to push the envelope despite the opposition from some Governing Council members to restarting QE. The account of the meeting will be released on 10 October and will provide more indications of the level of dissent. We know there will be at least one nay-sayer.

Further easing is likely given the likelihood of more of the same on growth and inflation. Tiering leaves the door open for further, likely incremental, reductions in the DFR. This is indeed formalized in the ECB's forward guidance.

The quarterly updates of the ECB's macroeconomic projections are a key staging post for policy decisions, as with the latest one, and therefore the updates in December this year and March next are key dates. We see a good chance of a further 10bp cut in the DFR in December, with new president Christine Lagarde probably eager to make an impression. That said, as there is limited room for the rate to go even further below zero, that could favor a more cautious approach and a somewhat longer delay. The bottom line is we expect a 10bp cut by March 2020's meeting latest.

There is also scope for the run-rate of net asset purchases to be stepped up. However, given asset scarcity and potential legal anxieties, we think the focus near-term will be on tweaking the DFR rather than the APP's run-rate.

The further the Fed cuts its policy rates, the more probable this focus on the DFR becomes given the ECB's eagerness to avoid an unwelcome exchange rate appreciation. As we have highlighted recently, the euro in trade weighted terms has been reappreciating recently.

Regarding other policy levers, the need for fiscal policy to complement monetary policy accommodation again featured more prominently. Draghi called for "effective, timely" action from member states which have fiscal space. Christine Lagarde is on the same page. The likelihood of fiscal stimulus is increasing, including from Germany, which is already in recession (bar the confirmation from Q3 GDP).

The shift towards other policy levers in part reflects increasing concern over the potential adverse side-effects of unconventional central bank measures, which the ECB is to some extent acknowledging (e.g. by introducing tiering). That said, in the event of a sudden sharp deterioration in the economic environment and/or inflation expectations, the ECB would have no choice but to step up. New president, same problems.

Posted 13 September 2019 by Ken Wattret, Vice-President, Global Economics, S&P Global Market Intelligence