ECB: Markets looking for asset purchases alteration cues – Lloyds Bank

Hann-Ju Ho, Research Analyst at Lloyds Bank, suggests that the focus today will turn to the ECB, with the policy announcement at 12:45BST and the press conference at 13:30BST as markets will be looking to see if the ECB’s easing bias for asset purchases will be altered.

Key Quotes

“The brighter economic outlook in the Eurozone has already resulted in an upward revision to the ECB’s assessment for growth to “broadly balanced”, while its explicit reference to potentially lower interest rates was removed.”

“At today’s meeting, markets will be looking to see if the ECB’s easing bias for asset purchases will be altered. Currently, it states that “we stand ready to increase our asset purchase programme in terms of size and/or duration”. We think the reference to the “size” may be removed. In any case, President Draghi at the ECB press conference is likely to be mindful of the potential market impact of any changes to its communication. As such, he is likely to emphasise that any policy adjustments should be “prudent”, to ensure inflation reaches the ECB’s target of close to, but below, 2% on a sustained basis. We do not expect the ECB to announce any changes to its asset purchase programme until after the summer.”

“The euro has fallen back from recent highs, ahead of the ECB policy announcement. Markets will be watching closely whether the reference to potentially increasing asset purchases in the ECB’s press release will be changed. In any event, we expect President Draghi will want to avoid a marked market reaction and will emphasise the need to continue policy stimulus for now.”