ECB Preview: 15 Major Banks expectations from March meet

As we are closing on to the ECB’s March meeting, following are the expectations as forecasted by the economists and researchers of 15 major banks. Almost all the banks expect little or no major changes from the ECB to the monetary policy outlook and no fresh initiatives. Market attention will be on the details while Draghi’s tone at the post meeting press conference will likely remain cautious with risks to growth seen remaining on the downside.

Danske Bank

We expect the ECB to maintain its dovish stance at the meeting this week although inflation has reached the 2% target. We expect core inflation will have to exceed 1.0% for a number of months before the ECB will announce tapering of its QE purchases. From a market perspective, expectations are very low with a zero probability of a move in the deposit rate at the upcoming meeting. The market is pricing a 50% probability of a full 10bp hike in January next year, which in our view is premature. 

Scotiabank

We expect no change in the management of ECB monetary policy when the Committee meets on March 9. The focus will therefore mainly be on the outlook for the macroeconomic scenario and any hint of a more hawkish bias. The Bundesbank President already hinted at an upgrade in the macroeconomic scenario, describing the recovery as “quite good” and indicating that 2017 inflation will be “far higher than projected”. Q4 GDP growth at 0.4% q/q was in line with the ECB’s assumption and the ongoing rise in all business surveys points to a significant acceleration at the beginning of the year. As a result, 2017 GDP growth could be revised slightly up. In view of all recent economic data and these potential upward revisions to the macroeconomic scenario, the tone of the ECB President could turn more hawkish.

BNP Paribas

Recent data challenge the ECB’s view that risks remain to the downside and that substantial monetary accommodation is still needed for inflation to return sustainably to trend. Against this backdrop, we expect the ECB to tweak its risk assessment at its meeting on 9 March, suggesting that risks ‘have receded’ or have become ‘more balanced’. We expect little or no change to the monetary policy outlook, however. The ECB should stick to its commitment to buy EUR 60bn worth of assets until at least December 2017. Changes to the forward guidance are possible, however. The ECB has currently a bias for more accommodation through lower rates and/or more QE. This bias could be removed.

Lloyds Bank

Euro area headline inflation climbed to 2% in February, which means that it is now above the ECB’s goal of “close to but below 2%”. Despite that, it is likely that President Draghi will play down its significance, because the rises in recent months have been driven almost entirely by energy prices. Underlying domestic inflationary pressures remain subdued, with the ‘core’ rate excluding food and energy remaining below 1%. The ECB has already announced that from next month it will scale back its monthly purchases to €60bn a month until year end, from €80bn previously. We expect this to go ahead but for policy to otherwise be left unchanged at meeting. President Draghi’s tone at the post meeting press conference will likely remain cautious with risks to growth seen remaining on the downside, partly relating to political uncertainties including upcoming French elections. Any removal of stimulus beyond the previously planned reduction would therefore be premature.

Deutsche Bank

It is too soon for a conversation on tapering. We expect Mario Draghi to repeat the message that tapering is not under discussion. Our baseline expectation remains unchanged. The press conference won’t be boring. We expect hints of a slow and gradual evolution to a less-dovish policy stance. This could come in different ways. First, we expect a less downbeat “balance of risks” (BOR) to the economy with a description of a firmer, broader and more resilient economy. Second, the Forward Guidance could be amended to remove the option of reducing policy rates further. Third, the ECB could remove “very” from the statement that “a very substantial degree of monetary accommodation is needed”.

Lloyds Bank

We expect the ECB to leave its policy stance and rhetoric broadly unchanged at the 9 March policy meeting. It has already said monthly asset purchases will be lowered from €80bn to €60bn in April, running to the year-end. President Draghi is likely to play down the latest rise in headline inflation to 2%, above the ECB’s goal, and emphasise that it needs to be durable and self-sustained. The ECB is expected to repeat its forward guidance that policy rates will “remain at present or lower levels for an extended period of time”. New economic projections are likely to revise up inflation, especially for this year, but economic growth forecasts are expected to be broadly unchanged, with the ECB continuing to see downside risks.

Nomura

The ECB convenes and most expect no change, but euro-area growth has been solid and headline inflation is almost at the 2% target. Admittedly, core inflation is still around 1% and the ECB may be reluctant to turn hawkish ahead of key political risk events. Nevertheless, the ECB has in the past tightened when consensus least expected it. A hawkish turn could see the euro rally against higher beta currencies such emerging European currencies.  

Natixis

Despite a significant improvement of inflation from December to February (with inflation reaching 2%), we believe that the Central bank will not change its current stance. However, it will be a challenging meeting since the governors will have to justify a status quo while inflation has returned to the official target of 2%. Finally we will closely follow the press conference and the Q&A session in an attempt to catch any indication on next steps regarding the exit of the QE policy.

Rabobank

After December’s commitment to keep the asset purchase programme in place until the end of this year, this week’s ECB meeting should bring no surprises with respect to both rates and the ECB’s pace quantitative easing – we expect both policy tools to remain unchanged. With no market expectations of a policy change either, attention will be on the details. In terms of ‘headline’ policy, we expect the ECB to remain firmly on hold this week, both in terms of rates and its asset purchases. Although risks are receding, we believe that it is too early for the ECB to change its risk assessment. Equally, we expect no changes to forward guidance, despite calls from earlier GC members to reassess the ECB’s promise on rates. There may be some discussion on the technical parameters of the asset purchases, but we believe that this week is too early for actual changes.

BAML

We think that the current “truce” between hawks and doves will be reflected in a dovish tone by Draghi today, with no decision. In our view, while the hawks may become a bit more vocal after the French elections – if a mainstream candidate wins – even in June the Governing Council’s appetite for another deep and potentially divisive decision on the monetary stance will be limited. After the summer, though, we think that a proper debate will be unavoidable. ECB forecasts matter, even if for the batch to be unveiled today we do not expect revolutionary messages. Indeed, we would expect very little changes to GDP forecasts, with headline inflation being revised higher in 2017 towards 1.7-1.8%. But the key element is that core inflation will likely remain unchanged, if not revised slightly lower, still far from the ECB comfort zone.

BMO CM

No changes to rates (refi rate 0.0%, deposit rate -0.4%) or the QE program are expected. This is the last month that the central bank will be buying €80 bln in securities; that drops to €60 bln as of April and will run through the remainder of the year. This is also the month that the new staff forecasts will be tabled. The press conference will be a little more interesting, given that inflation finally hit 2% last month, the first time in over four years, so expect plenty of questions regarding plans to taper. However, the Governing Council will likely prefer to see core inflation pick up before publicly contemplating reining in the program, and core prices have gone nowhere (at or below 1%) for over three years.

RBC CM

The ECB is expected to leave policy unchanged when it meets. Instead the focus is likely to be on possible changes in language with a number of voices coming out since the last meeting to call for a change to the ECB’s forward guidance. An updated set of staff macroeconomic projections that are likely to see an upward revision to inflation estimates in particular, will add weight to those calls. However, the February inflation print which showed core inflation remaining unchanged at 0.9% should give the Governing Council space to stick to its recent line emphasising the lack of upward trend in core inflation as reason to look through the recent rise in inflation and maintain its forward guidance as is for the time being.

TDS

We look for Draghi to once again deliver a dovish message in the face of an upbeat macro story. The focus will be on higher 2017 HICP forecasts, but the crude oil futures curve also points to a small 2018 inflation forecast downgrade. We look for the asymmetric forward guidance to remain fully intact for now, and for the TLTRO II programme to be extended for another year. But the risks of a more hawkish shift from the ECB pick up into the summer, once we get past French elections.

AmpGFX

The outlook for the Eurozone economy has improved with business confidence surveys at multi-year highs and a stronger global backdrop; important for the Eurozone given its relatively high share of exports in GDP.  Headline inflation has jumped sharply to surpass the ECB’s medium-term target for the first time since Jan-2013.  This may be generating some thoughts of a less dovish ECB statement on Thursday.  The ECB must weigh the odds that the USA imposes a border tax or pursues protectionist policies that threaten to disrupt the outlook for global trade.  As such, we still expect Draghi to state that there is scope to expand and extend the asset purchase plan if the outlook deteriorates. 

SocGen

No policy change is expected, and while Mario Draghi will acknowledge the better economic backdrop and higher inflation, but avoid any watering-down of the dovish bias.

Click here to read more about the ECB Interest Rate Decision from our in house Chief Analyst Valeria Bednarik titled “ECB Preview: Draghi has the last saying, but his hands are tied”