ECB Set to Leave Policy Unchanged: Forecast from 14 major banks

The European Central Bank will announce its policy decision at 12:45 GMT, followed by the ECB President Christine Lagarde’s conference at 1330 GMT. here are the forecasts by the economists and researchers of 14 major banks.

Danske Bank

“We do not expect new policy decisions, but a reiteration of all options on the table while ensuring easy financing conditions. We lean towards the ECB concluding a continuation to monitor and remain short of concluding an unwarranted tightening. We do not expect talking is enough to contain rates, but the action is needed. We, therefore, see upside risks during the press conference to rates. Should the ECB choose to pursue a more dovish stance, we would expect relative rates to become a further drag on EUR/USD. If not, we see EUR/USD as little changed on the day. We expect ECB to repeat the cautiously optimistic tune regarding the economic outlook of the euro area, with minor revisions to its staff projections (slightly lower growth and higher inflation this year). We expect Lagarde to reiterate that the ECB will look through the base effects-driven inflation near-term.”

Capital Economics

“We expect the ECB to nudge up its forecast for inflation in 2021 and nudge down its forecast for GDP growth, but stress that inflation is still likely to fall short of the near -2% target over the medium-term. With no prospect of any change to its policy settings, the focus will be on the Bank’s efforts to explain how and when it would step up bond purchases in response to rising bond yields. On balance, we think the upshot will be higher purchases and slightly lower yields in the coming weeks.”

TDS

“The key focus for markets will be how hard the ECB pushes back on the recent rise in yields. While we think that the overall financing conditions ‘compass’ clearly points to a tightening of financial conditions, we’re also sceptical that the ECB is willing to do enough to actually keep a lid on yields.”

Deutsche Bank

“The focus will be all about whether the council feel that the recent rise in bond yields is proportional to the improving global economic prospects or an unwelcoming tightening of financial conditions. Our economists expect them to emphasise their commitment to preserving favourable financing conditions, which encompasses sovereign yields, and its willingness to use the PEPP’s capacity and flexibility.”

Citibank

“We think the disagreement within Council between those who believe the monetary policy to still be effective (albeit in combination with fiscal policy) and those who do not (and have in effect given up on raising inflation back to the objectives) would make a compromise and clarification of policy, harder to reach. Ideally, the governing council should restore credibility by providing an explicit indication of what yield levels it wishes to protect. But given the disagreements, we deem this unlikely at this meeting. Focus on staff projections – the conclusion is likely to be that the output gap remains large and that inflation remains too far from target to allow any tightening in financial conditions.”