ECB: We expect changes in the forward guidance while an announcement of liquidity measures is likely - BBVA

On Thursday, the Governing Council of the European Central Bank will meet. 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. 

Key Quotes: 

“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, the 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.”

“We expect that this new liquidity operations (T)LTRO will be designed with less generous conditions as compared to the current TLTROs, i.e. a shorter maturity and at a cost set at the average rate of MROs over the life of the operation, without benefiting the from negative rates.”

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