With the ECB scheduled to meet today for its last monetary policy review for the year, here are some of the important sections we see that the ECB could stress on. Traders can view the live stream of the ECB’s press conference from this URL: http://www.ecb.europa.eu/press/tvservices/webcast/html/webcast_141204.en.html
Interest Rates likely to remain unchanged
The European Central Bank will be releasing its minimum bid rate today at 1245 hours GMT followed by the press conference at 1330 GMT. The ECB is expected to keep the interest rates unchanged at 0.05% with no further changes to the already negative deposit rates.
ECB’s staff inflation and economic projections could be revised lower
There will also be the ECB’s staff economic projections for the Eurozone which is expected to show downward revision on inflation and growth factors stressing on the continued threats to reviving the Eurozone’s economy. It is quite possible that Draghi will stress on the “we will do what we can do raise inflation and inflation expectations as fast as possible” comment which he last made in November which triggered a sharp decline in the EURUSD.
Question on QE timeline
The markets were fuelled by comments from Draghi as well as the ECB’s #2, Vitor Constancio who was of the view that the ECB could look into sovereign bond purchases sometime during Q1 of 2015 while reiterating that the ECB is willing to wait and see the effects of the current policies take their effect on the Eurozone economy.
In this view, Draghi could possibly approach the question of QE with caution without spooking the markets. The declines in the Euro against the Greenback, in the past weeks show that the markets are starting to price in the QE stimulus program due for next year.
TLTRO, Covered Bonds and ABS Purchases
However, bear in mind that next week, December 11th, the ECB’s TLTRO 2 will begin. While the first tranche of the TLTRO scheme saw lukewarm response, it was justified by factors that the European banks did not want to take on too many liabilities ahead of the bank stress tests. With that done with and most of the banks passing the stress tests comfortably, expectations will ride high next week. Expectations are high that this second tranche of TLTRO will see a take up of between 150 – 200 bn.
Therefore, we could expect to see a bit more talk about the TLTRO purchases as way for Draghi to remind the markets that the ECB is committed to lifting inflation and kick starting the European economy. On the same note, the ECB could also spend more time highlighting its covered bond and ABS purchases, both of which are directed towards increasing credit supply.
What does it mean for the Euro?