ECB: Highly unlikely to take new initiatives today - BBH

Analysts at BBH note that the focus now shifts to the ECB and of course, after adjusting policy last month, the ECB is highly unlikely to take new initiatives today.  

Key Quotes

“The most important new development since the December ECB meeting is the rise in inflation.  Headline CPI stood at 1.1% at the end of last year, nearly double the 0.6% pace seen in November.  The rise in German CPI to 1.7% can only increase the criticism by the German representatives of the ECB's stance.”

“We look for Draghi to push back.  Like several other national central bank presidents, Draghi is likely to caution against exaggerating the increase in inflation and see it as mostly reflecting the recovery in energy prices.  The core rate is at 0.9% having bottomed at 0.6%.  The ECB will have to wait until new staff forecasts are available in March to understand better if the trajectory of inflation has changed.”

“Last month, Draghi acknowledged that deflationary forces were almost vanquished.  He can extend this analysis a little, but it may not yet be time to change the balance of the outlook quite yet.  Still, there may be scope for another type of concession to the more hawkish contingent: the reference that rates will remain low or lower can be modified to suggest less risk of lower rates.”

“Draghi, like Yellen, will also likely recognize the high degree of uncertainty.  In addition to the uncertainty around the policies and priorities of the new US Administration, Draghi also has to navigate through several elections, including Germany, France, and Netherlands.  There is also some risk of elections in Greece and Italy too.”