ESSENTIALS OF THE MONETARY POLICY

François Dupuis, Vice-President and Chief Economist Mathieu D’Anjou, Senior Economist • Jimmy Jean, Senior Economist • Hendrix Vachon, Senior Economist

Desjardins, Economic Studies: 514-281-2336 or 1 866-866-7000, ext. 5552336 • desjardins.economics@desjardins.com • desjardins.com/economics

NOTE TO READERS: The letters k, M and B are used in texts and tables to refer to thousands, millions and billions respectively.IMPORTANT: This document is based on public information and may under no circumstances be used or construed as a commitment by Desjardins Group. While the information provided has been determined on the basis of data obtained from sources that are deemed to be reliable, Desjardins Group in no way warrants that the information is accurate or complete. The document is provided solely for information purposes and does not constitute an offer or solicitation for purchase or sale. Desjardins Group takes no responsibility for the consequences of any decision whatsoever made on the basis of the data contained herein and does not hereby undertake to provide any advice, notably in the area of investment services. The data on prices or margins are provided for information purposes and may be modified at any time, based on such factors as market conditions. The past performances and projections expressed herein are no guarantee of future performance. The opinions and forecasts contained herein are, unless otherwise indicated, those of the document’s authors and do not represent the opinions of any other person or the official position of Desjardins Group. Copyright © 2017, Desjardins Group. All rights reserved.

ACCORDING TO THE ECB

f Interest rates on the main refinancing operations as well as the marginal lending facility and deposit facility remain unchanged, at 0.00%, 0.25% and -0.40%, respectively.

f The key interest rates will remain at current levels for an extended period of time, and well past the horizon set for net asset purchases. The possibility of further rate cuts was withdrawn from the statement.

f The volume of net asset purchases remained at €60B per month, a pace that should be maintained until December 2017.

f Economic growth forecasts were upgraded to 1.9% for 2017, 1.8% for 2018 and 1.7% for 2019. Overall, the risks to economic growth are considered to be broadly balanced.

f Inflation forecasts were downgraded to 1.5% for 2017, 1.3% for 2018 and 1.6% for 2019.

COMMENTS

As expected, the ECB’s tone was more optimistic today. Considering that economic risks are more balanced, it excluded the possibility of further key interest rate cuts. However, it still maintained a degree of caution by indicating that it could increase its net asset purchases, if necessary.

While the ECB has upgrade its growth forecasts, its views on inflation were somewhat more pessimistic. In March, the ECB expected inflation to reach 1.7% in 2017, 1.6% in 2018 and 1.7% in 2019. This downgrading primarily reflects the prolonged weakness of oil prices, but also the persistent weakness of underlying inflation in the euro zone which fell back to 0.9% in May after surging 1.2% in April.

IMPLICATIONS

The expected change in tone of the ECB was one of the main supports for the euro in recent weeks. Other factors should weigh more heavily on Europe’s currency, most particularly developments in U.S. monetary policy.

In light of the information provided today by the ECB, no signs point to hasty monetary firming in the euro zone. The ECB is very likely to keep up its asset purchases until the end of the year, as expected. A phase of gradually tapered asset purchases should then begin. Only much later will key interest rates start to rise—probably not before the end of 2018.

Hendrix Vachon, Senior Economist

European Central Bank (ECB)Upgraded Economic Growth Forecasts Change the Tone

ECONOMIC STUDIES | JUNE 8, 2017

GRAPH Inflation forecasts have been downgraded

CPI: consumer price index Sources: Datastream and Desjardins, Economic Studies

Euro zone – Inflation rate

In %

-1

0

1

2

3

4

5

2005 2007 2009 2011 2013 2015 2017 2019

Total CPI CPI excluding foods and energy March forecasts

European Central Bank

forecasts

#1 BEST OVERALLFORECASTER - CANADA

ECONOMIC STUDIES

2JUNE 8, 2017 | ESSENTIALS OF THE MONETARY POLICY

Date Central banks Decision Rate

11 Bank of Brazil -75 b.p. 13.0012 Bank of Korea s.q. 1.2518 Bank of Canada s.q. 0.5019 European Central Bank s.q. 0.0030 Bank of Japan s.q. -0.10

1 Federal Reserve s.q. 0.752 Bank of England s.q. 0.256 Reserve Bank of Australia s.q. 1.508 Reserve Bank of New Zealand s.q. 1.759 Bank of Mexico +50 b.p. 6.25

15 Bank of Sweden s.q. -0.5022 Bank of Korea s.q. 1.2522 Bank of Brazil -75 b.p. 12.25

1 Bank of Canada s.q. 0.506 Reserve Bank of Australia s.q. 1.509 European Central Bank s.q. 0.00

15 Federal Reserve +25 b.p. 1.0015 Bank of Japan s.q. -0.1016 Bank of England s.q. 0.2516 Bank of Norway s.q. 0.5016 Swiss National Bank s.q. -0.7522 Reserve Bank of New Zealand s.q. 1.7530 Bank of Mexico +25 b.p. 6.50

4 Reserve Bank of Australia s.q. 1.5012 Bank of Korea s.q. 1.2512 Bank of Brazil -100 b.p. 11.2512 Bank of Canada s.q. 0.5027 European Central Bank s.q. 0.0027 Bank of Sweden s.q. -0.5027 Bank of Japan s.q. -0.10

2 Reserve Bank of Australia s.q. 1.503 Federal Reserve s.q. 1.004 Bank of Norway s.q. 0.50

10 Reserve Bank of New Zealand s.q. 1.7511 Bank of England s.q. 0.2518 Bank of Mexico +25 b.p. 6.7524 Bank of Korea s.q. 1.2524 Bank of Canada s.q. 0.5031 Bank of Brazil -100 b.p. 10.25

6 Reserve Bank of Australia s.q. 1.508 European Central Bank s.q. 0.00

14 Federal Reserve15 Bank of England15 Swiss National Bank16 Bank of Japan21 Reserve Bank of New Zealand22 Bank of Norway22 Bank of Mexico

January

February

March

April

May

June

Schedule 2017 of Central Bank MeetingsDate Central banks Decision Rate

4 Reserve Bank of Australia4 Bank of Sweden

12 Bank of Korea12 Bank of Canada20 European Central Bank20 Bank of Japan26 Bank of Brazil26 Federal Reserve

1 Reserve Bank of Australia3 Bank of England9 Reserve Bank of New Zealand

10 Bank of Mexico30 Bank of Korea

5 Reserve Bank of Australia6 Bank of Brazil6 Bank of Canada7 European Central Bank7 Bank of Sweden

14 Bank of England14 Swiss National Bank20 Federal Reserve21 Bank of Norway21 Bank of Japan27 Reserve Bank of New Zealand28 Bank of Mexico

3 Reserve Bank of Australia18 Bank of Korea25 Bank of Brazil25 Bank of Canada26 European Central Bank26 Bank of Norway26 Bank of Sweden31 Bank of Japan

1 Federal Reserve2 Bank of England7 Reserve Bank of Australia8 Reserve Bank of New Zealand9 Bank of Mexico

29 Bank of Korea

5 Reserve Bank of Australia6 Bank of Brazil6 Bank of Canada

13 Federal Reserve14 European Central Bank14 Bank of England14 Bank of Norway14 Bank of Mexico14 Swiss National Bank20 Bank of Sweden21 Bank of Japan

July

August

September

October

November

December

NOTE: Certain banks may decide to change rates in-between the scheduled meetings. The abbreviations s.q. and b.p. correspond to status quo and basis points respectively.