According to the Research Department at BBVA, today European Central Bank meeting was of a wait-and-see stance but leaning to the dovish side. They see the introduction of a new round of LTROs by March or June.
Key Quotes:
“The interest of this week’s meeting was mostly seeing to what extent is the ECB worried about the current loss of growth momentum. No decisions were expected and indeed the ECB maintained its monetary policy stance, leaving key interest rates unchanged and reiterating that they expect them to remain “at their present levels at least through the summer of 2019, and in any case for as long as necessary.””
“The most important change in the statement came from the economic side as the ECB changed the balance of risks on growth to the downside. In December the language on risks was less clearcut (risks “moving” to the downside).
“When Mr Draghi was asked about the market expectations on the first rate hike – now pricing in mid2020-, he replied that markets had understood the ECB’s “reaction function”. This suggests that the central bank does not seem uncomfortable with market expectations.
“On the possibility of another liquidity provision (LTRO), no decisions were taken either, though several member of the GC had mentioned the topic during the meeting.”
“We continue to expect the ECB to announce a new round of LTROs by March or June 2019, in order to avoid a liquidity cliff.“
“Today’s statement and press conference was one of those examples of a wait-and-see stance, but leaning to the dovish side (as we expected). In this way, the ECB leaves the door open to altering its forward guidance on rates in the coming months and delaying its rate hikes.”
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