ECB Preview: 11 Major Banks expectations from March meeting

Today, we have an all-important ECB meeting, and as we get close to the decision timings, here are the expectations as forecasted by the economists and researchers of 11 major banks for the upcoming meet.

Most of the researchers and economists are forecasting, that no change in policy from the ECB is expected, but we will be getting updated staff forecasts and perhaps further hints about TLTRO2. So, the focus of the March meeting will be on banks projections, guidance, and liquidity.

Deutsche Bank

“While no change in policy from the ECB is expected, we will get updated staff forecasts (which are likely to show downgraded growth forecasts) and perhaps further hints about TLTRO2.”

“Recent ECB commentary and the accounts of the January ECB meeting clearly signal that addressing TLTRO2 maturity is on the agenda, although its not clear that a decision will come as soon as Thursday's meeting. Nevertheless, it's likely to be a topic of discussion.”

“Our economists believe that at the very least, it is appropriate for the ECB to implement a TLTRO2 solution that allows net exposures to be rolled over. This would help the ECB to preserve its monetary policy stance and prevent a temporary economic slowdown from propagating through unnecessary deleveraging, especially in the periphery.”

ING

According to Carsten Brzeski, chief economist at ING, the ECB in its meeting will have to balance between pre-emptive action, which could be perceived as panic, and a relaxed wait-and-see attitude, which could be perceived as complacency.

“The latest ECB staff projection are very likely to show a downward revision of 2019 GDP growth (1.7% in the December projections).”

“Compared with the December projections, there should be no new impulse from oil prices.”

“This, in our view, also means that there will be hardly any changes to the ECB’s staff projections for inflation (1.6%, 1.7% and 1.8% for the period 2019-2021 in the December projections).”

“In this situation of increased uncertainties, a normal ECB reaction would be to sound dovish, stay on high-alert and tackle the situation with words not action.”

“We expect the ECB to announce that the Governing Council asked the relevant committees to look into options on how to deal with liquidity bottlenecks and bank profitability. The April meeting will then be the meeting where the real ECB action is. This, however, does not mean that this week’s meeting will be dull.”

BBVA

The Research Department at BBVA expect changes in the forward guidance on rates, hinting at a further delay of the first rate hike while they also see a possibility of an announcement of liquidity measures. 

“The cautious tone should be reinforced as recent news have been mostly negative: disappointing macro data, inflation expectations at very low levels and growing risks due to global concerns, despite the stabilization in financial markets and the partial easing of concerns about protectionism (and more recently over Brexit).”

“In particular, the ECB could adapt its forward guidance on interest rates introducing an additional dovish tweak to its tone defined at the December meeting, when the central bank admitted that the balance of risks was moving to the downside. If the ECB does not move as soon as at this meeting, then it could at least open the door to do so in the coming months.”

“Regarding the possibility of a new liquidity measure (TLTRO), the central bank should give some clues this week. The ECB is likely to announce the measure, though giving the details may be still premature, as the accounts from the last meeting revealed that decisions in this respect should not be taken too hastily.”

Nordea Markets

According to analysts at Nordea Markets, ECB is finding itself considering new stimulus measures again and suggest that the new liquidity operations will be in store, but Euro-area excess liquidity has most likely peaked already.

“New liquidity operations will be in store, but not yet in March.”

“We see three scenarios for the ECB, depending on what they want to achieve with new liquidity operations.”

“In our baseline, the ECB will try to prevent a relatively rapid fall in excess liquidity and offer new 4-year TLTROs.”

“If the ECB also wants to provide additional monetary policy easing, it needs to find very attractive liquidity operations, possibly with an even longer maturity than four years.”

“In all the scenarios, excess liquidity will fall, but that does not automatically mean that monetary policy would tighten rapidly.”

“TLTROs will probably not be a game-changer for the EUR, but will have curve and spread implications.”

TD Securities

Analysts at TD Securities are looking for a relatively unchanged message from the ECB and suggest that the policy statement is likely to remain unchanged, and they are not anticipating TLTROs, and risks around growth are likely to remain tilted to the downside.

“The ECB releases the quarterly update of its macroeconomic projections. We expect a sharp downward revision to the growth forecast, with 2019 growth revised down from 1.7% to 1.3%, which would be the biggest single-meeting downgrade to growth since 2012.”

“Turning to inflation, oil prices are about 8% weaker across the forecast horizon, while the EUR remains unchanged. We expect the pass-through from lower oil prices, coupled with some further degree of slack on account of weaker demand growth, to lead to a downward revision in headline inflation: we expect inflation to be revised down by 0.2ppt in 2019 to 1.4% (also in line with European Commission estimates), and 0.1ppt lower in 2020 and 2021.”

“From a strictly theoretical standpoint, the ECB should downgrade the new projections enough to re-center them and ensure the risks are balanced. But we don't expect the balance of risks to be "upgraded" in this sense (even on a large growth downgrade), largely because the risks mainly represent external, binary factors that are hard to model.”

Rabobank

According to analysts at Rabobank, ECB’s economic outlook will take centre stage in its upcoming meeting and the staff projections will probably be cut, something that’s becoming a recurring theme.

“We believe that this meeting is too early for changes in the forward guidance.”

“But due to the ECB’s desire to safeguard access to credit, we expect the ECB to follow up on the current TLTRO-II with a fresh series of long-term refinancing operations in the near future.”

“Policy rates

• Forward guidance to remain unchanged at “through the summer of 2019”.
• Despite guidance remaining unchanged, we don’t expect any rate hikes in 2019 and 2020.”

“Asset Purchase Program

• No changes to the reinvestment program or its forward guidance.”

“LTROs

• We expect Draghi to mention a successor for TLTRO-II, with allotment starting in June.
• This successor will probably focus on maintaining current levels of liquidity.
• That said, the ECB may save the official announcement, including the full modalities, for April.”

ABN AMRO

In view of analysts at ABN AMRO, ECB’s forthcoming meet on Thursday will have attention firmly focused on the macro projections, forward guidance and a possible new TLTRO.

“It is obvious that the ECB staff macro projections will see significant downgrades. The main uncertainty is the matter of extent. Our sense is that 2019 forecasts will see the largest revisions, though we also expect to see a moderate downgrade to core inflation in 2020. Meanwhile, on the back of the deterioration in the economic outlook and a significant fall in market inflation expectations, we expect the ECB to react.”

“We think the Governing Council will change its forward guidance on policy rates.”

“We think the ECB will eventually announce a new TLTRO programme as well, though the March meeting might be too early to expect this.”

Nomura

Analysts at Nomura offer a sneak peek at what expect from Thursday’s European Central Bank (ECB) monetary policy decision due at 1245 GMT.”

“The most important signal to watch for at the ECB meeting will be related to the extension of the TLTROs and interest rate forward guidance.”

“Although an actual decision may well be delayed until April or June, we think Mr Draghi is likely to signal at March's meeting that the ECB is looking closely into offering another TLTRO in coming months.”

“With regard to rate forward guidance, there is less urgency to tweak the Bank's communications at this stage, but it should consider altering its language in June we think.”

“The ECB's projections for growth and inflation should echo the message that it needs more time to assess if recent downside surprises are temporary or more permanent in nature.”

Bloomberg

“Citing sources familiar with the matter, Bloomberg reported that the ECB will cut the growth outlook by enough to warrant new loans (LTROs).”

“The ECB is further said to hold discussions on the design of the new targeted loans and debate the maturity and the interest rate on those loans. Sources also noted that the ECB will cut inflation projections through 2021.”

Westpac

“March will focus on projections, guidance, and liquidity.”

“Regarding macroeconomic projections, the ECB have downplayed the current slowdown’s impact on the medium– term outlook, highlighting temporary factors.”

“In terms of the implications for policy rate forward guidance, the Bank of France Governor noted that if the downturn continues into summer, then the ECB will be “ready to adapt their monetary policy guidance”. For now, there is sufficient 'state–contingency' contained in the current guidance with rates on hold “at least through the summer of 2019”.”

“The liquidity discussion is on the maturing first €400bn operation of TLTRO–II in June 2020. This will affect banks in June 2019 due to regulatory funding ratios. The question is on how the ECB may extend loans to avoid “cliff effects”.”

National Bank of Canada

“The European Central Bank will hold a monetary policy meeting during which the possibility of a new round of targeted longer-term refinancing operations (TLTROs) may be discussed. (TLTROs consist in cheap loans made by the ECB to European banks aimed at stimulating lending to businesses and households).”