ECB: Don’t foresee a major overhaul of the monetary policy statement - Rabobank

Analysts at Rabobank suggest that as the January minutes confirmed, the ECB is likely to have a discussion on its communications ‘early in the year’ and to them, that still reads as either March or April.

Key Quotes

“With new staff projections informing today’s monetary policy decision, we would expect this debate to have started. That said, we do not foresee a major overhaul of the ECB’s monetary policy statement when it is read this afternoon. Some members of the Governing Council have recently noted that the main strength of forward guidance is in its consistency, which suggests that it is too early for the majority of the Council to make a clean break with its current communication strategy.”

“However, with an economy that continues to gear ahead, we believe that the ‘threat’ of increasing the asset purchases if the outlook becomes less favourable is getting increasingly difficult to maintain. Indeed, we would argue that the credibility of such a threat is already low at best: markets are certainly not expecting the central bank to significantly ramp up its asset purchases. Instead this part of the statement is generally seen as a remnant of earlier policy actions, dating back to the period when the recovery was still nascent, and downside risks to inflation were larger. In fact, the accounts of the previous meeting revealed that “some members expressed a preference for dropping the easing bias regarding the APP”.”

“We believe that removing the easing bias today allows the Governing Council to reiterate their confidence and gradually prepare the market for more substantial changes to the forward guidance later in the year, without sparking an overly hawkish market reaction.”