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ING: ECB To Wait Until September Before Easing

The European Central Bank is likely to wait until September before it delivers another stimulus in the form of a deposit rate cut and provide some hint at restarting asset purchases, ING economist Carsten Brzeski said Friday.

A rate is now just a question of 'when' rather than 'if', the economist said, referring to ECB President Mario Draghi's speech in Sintra, Portugal, in which he signaled that the central bank still has room to cut interest rates and adopt stimulus measures.

ECB Governing Council's next rate-setting session is scheduled on July 25 in Frankfurt.

"Draghi's track record in over-delivering and trying to be ahead of the curve, however, could bring a rate cut already at the ECB's July meeting. In our view a very close call," Brzeski said.

"Unless the days leading up to the July meeting bring more disappointing macro data, we think the ECB will wait until the September meeting to deliver a 10bp rate cut in the deposit facility, combined with a clear commitment to restarting quantitative easing."

Policymakers are unlikely to exhaust all their policy options as they might need them in case of a disorderly Brexit, the economist said.

Brzeski also pointed out that the ECB may introduce a tiering system for excess liquidity in future as a lower negative deposit rate for a longer time to come will increasingly hurt bank profitability.

The economist said it is almost certain that a new corporate bond purchase programme would be launched.

Regarding the nomination of IMF Chief Christine Lagarde as the new ECB President, Brzeski said there will be little change in the ECB's monetary policy over the coming months.

"In fact, extended forward guidance, new dovishness and probably a new round of QE before she enters office have tied Lagarde to the Draghi chains going into 2020," the economist added.

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