On Thursday, the Governing Council of the European Central Bank will meet and no change in polity is expected. According to the Research Department at BBVA, the ECB will likely confirm the balance of risk turned to the downside.
Key Quotes:
“The ECB is expected to leave monetary policy unchanged at its January meeting while confirming that the balance of risks has turned to the downside. The cautious tone could be reinforced on the back of disappointing data, some moderation of inflation expectations and growing risks due to global concerns and euro zone slowdown, despite the stabilization in financial markets and the partial easing of concerns about protectionism.”
“The ECB could acknowledge that risks are now tilted to the downside, an additional dovish tweak to the tone at the December meeting, when the central bank admitted that the balance of risks was moving to the downside. In this way the ECB could open the door to altering its forward guidance on rates in the coming months.”
“Regarding other monetary policy issues, the central bank should give some clues about the possibility of a new LTRO. At this meeting any announcement may be still premature, as at the last meeting Mr Draghi revealed that the committees had just started work on liquidity issues.”
“We expect the ECB to announce an extension of TLTROs by March or June 2019, in order to avoid a liquidity cliff in the coming year (when a large repayment of past TLTROs should take place).”
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