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EC Bank Rate - 01/21/2016
EC Bank Rate - 01/21/2016
ECB meeting preview: Are the latest measures “adequate”? The European Central Bank is expected to hold fire today, but to maintain the likelihood to react if inflation outlook deteriorates. At their last meeting, the Governing Council reduced the deposit facility rate by 10bps and extended the QE program for at least another 6 months.
In the meantime, the Bank expanded the assets it can purchase and decided to reinvest the proceeds from the bonds that mature. Some members of the Governing Council stated recently that they are skeptical about further policy action in the near-term and that they need to monitor the effectiveness of the previous actions first.
With the latest stimulus package just above a month old, we don’t expect any change in policy at this meeting. Instead, we believe the Bank will remain on hold in order to assess whether the risks to growth and inflation have risen, following the renewed fall in oil prices. After almost exactly a year when the Bank initiated its asset purchase program,
ECB officials are likely to be questioned whether the previous measures are not exerting the desired effects and if more action is likely this year. After having raised expectation too high at the December meeting, ECB Draghi may also be cautious in his choice of language.
He could simply stress the Bank’s readiness to act again and keep the door open to use all the tools available within its mandate. The market is already pricing in some further easing this year, despite Draghi describing the latest measures as “adequate”. A change to that language is needed to signal additional measures, and weaken the common currency.
Good Luck.....!!!