Hesitant ECB will probably step up bond purchases

At next Thursday’s monetary policy meeting we expect the ECB to nudge up its forecast for inflation in 2021 and nudge down its forecast for GDP growth, but stress that inflation is still likely to fall short of the near-2% target over the medium term. With no prospect of any change to its policy settings, the focus will be on the Bank’s efforts to explain how and when it would step up bond purchases in response to rising bond yields. On balance, we think the upshot will be higher purchases and slightly lower yields in the coming weeks.