For now at least, the ECB appears happy to leave its “powerful artillery” in the arsenal due to its fairly sanguine outlook for inflation. But rather than start to rise gently in line with the ECB’s forecasts, we expect both core and headline inflation to ease and the periphery to suffer from outright deflation. Accordingly, next year, the ECB will have little choice but to make greater use of the policy instruments that it has at its disposal.
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