Summary

• The October ECB interest rate decision should be a plain old and boring hold. President Lagarde will stick to her guns and refuse to guide for interest rate increases. While energy price inflation has turned out higher than expected – obviously – weakening bank lending, the (French) bond market turmoil and somewhat softer growth will prevent overt hawkish tendencies from emerging on Thursday;

• With rumors that Lagarde could be nominated as World Economic Forum Chair as soon as this month, two names keep popping up as her successor: former Dutch central bank head Knot and former Bank of Spain chief De Cos. If past ECB-speak is any guide, neither is a Draghi-type who bends the central bank to his will and enthralls markets;

• Things could get exciting on the open market operations front. Given easing pressures in repo and strongly increased recourse to the LTROs and MROs, there’s a window of opportunity to double Minimum Required Reserves to 2%. If the ECB pulls the trigger, to replenish (regulatory) reserve levels Italian banks will borrow sizeable amounts of reserves in the market and from the Eurosystem henceforth. But don’t count out German banks, the second biggest borrowers from the Eurosystem.

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