ECB likely to remain on hold for now – Standard Chartered

Analysts at Standard Chartered expect the European Central Bank (ECB) to keep all key interest rates and quantitative easing (QE) programme parameters unchanged at its 27 April meeting.

Key Quotes

“We also expect forward guidance – that QE will continue at the current pace at least until December 2017 – to remain unchanged. The Governing Council (GC) will likely maintain key phrases in the press statement, saying that rates will remain “at present or lower levels for an extended period of time, and well past the horizon of...net asset purchases”, and that risks to the economy remain “tilted to the downside”. Any softening of these statements could signal earlier removal of policy accommodation.”

“The macroeconomic environment has brightened in the past two quarters and markets have begun pondering when the ECB will outline its exit strategy. But underlying inflation pressures are low and risks remain. Several political and geopolitical events could reignite a risk-off environment, most immediately the French presidential elections.”

“This backdrop has created a challenge for the ECB regarding how to communicate that the environment is more benign without creating expectations of tighter monetary policy that would undo accommodative financial conditions. The GC took the first baby steps in its March meeting by tweaking the statement, adding “downside risks to growth are less pronounced”. We think that changes to President Draghi’s statement may come in June, and the prospect of tapering in 2018 may be introduced, as long as growth stays buoyant and political risks in France fade."