Carsten Brzeski, chief economist at ING, explains that the just-released minutes of the March meeting illustrate the ECB’s growing concerns about the economic outlook for the Eurozone, first doubts about any sustainable convergence of inflation to target and first awareness of negative side-effects on the banking sector.
Key Quotes
“Interestingly, some ECB members were contemplating to label the risks surrounding the Eurozone outlook as balanced.”
“Looking at next week’s meeting, the minutes as well as recent comments by ECB president Mario Draghi and Chief Economist Peter Praet signal that the ECB is investigating whether and how the ECB should provide some relief to the banking sector. Also, don’t forget that the ECB still has not presented what the so-called built-in incentives in the next TLTROs could be. In our view, there is no rush to present any details already next week. Instead, we expect the ECB to wait until the June meeting.”
“All in all, reviewing today’s ECB minutes and previewing next week’s ECB meeting, we do not expect the ECB to announce further details of the built-in incentives for the next TLTROs or of any tiering system already next week. The ECB will continue with the balancing act between demonstrating that it is not running out of ammunition while still keeping some cards to its chest.”
“The most likely next step is still the announcement of the detailed conditions for the third batch of TLTROs (at the June meeting). Introducing a tiering system will be investigated but probably only announced in case the economy has not started to rebound by June.”
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