The European Central Bank’s June meeting has offered some long-hoped-for clarity on the future direction of monetary policy in the eurozone. However, it hasn’t provided all the answers, and much remains open to interpretation. David Zahn, Franklin Templeton’s head of European Fixed Income, considers what might happen next and explains why he’s still not expecting a eurozone interest-rate hike before 2020.

As we expected, the European Central Bank (ECB) has extended its quantitative easing (QE) program—which was due to expire in September—until the end of 2018. But while the bank’s post-meeting communique offers some fresh clarity, we think much remains open to interpretation.

In the short term, however, we see the extra clarity as positive. In the lead-up to the June meeting, European bond yields had risen sharply, apparently in expectation of an earlier end to QE and a resultant reduction in bond market liquidity.

When Will Interest Rates Start to Rise?

Ahead of the meeting, speculation had also intensified around the timing of potential interest-rate hikes in the eurozone.

Neither the official post-meeting communique nor ECB President Mario Draghi’s press conference offered any explicit guidance on the exact timing.

However, the central bank did indicate it would expect a gap of at least two quarters between the end of the QE program and the first eurozone interest-rate hike. That would suggest the summer of 2019 as the earliest time for a rate hike.

Although we now know that QE is scheduled to end under Draghi’s watch, we think the ECB could wait a little longer before starting to raise interest rates.

With Draghi’s term of office due to expire at the end of October 2019, we feel the ECB is unlikely to start increasing interest rates until the new ECB president is firmly in place.

If Draghi were to set the ECB on a tightening path, we think it would constrain whoever succeeded him. In our experience, central bankers in general don’t like to prescribe what path their successors should follow.