Draghi to fire the starting gun, Lagarde to run the race

The latest economic data, together with the nomination of Christine Lagarde for ECB president, make us more confident in our view that the ECB will cut interest rates and re-launch QE before the year is out. All of the activity data point to a slowdown in GDP growth in Q2, and the deterioration in economic sentiment in June bodes ill for the beginning of the third quarter. What’s more, a range of measures show that underlying price pressures remain subdued. Meanwhile, Ms Lagarde has generally supported central banks’ use of “unconventional” tools including negative interest rates and asset purchases. So we continue to expect the ECB to cut interest rates in September (see Chart 1) and Mario Draghi to announce a new round of QE at his last meeting as president in October, with new purchases beginning the following month when Ms Lagarde joins the Bank.