According to analysts at TD Securities, the ECB decision was mixed, providing some dovish queues via a longer forward guidance, while at the same time, delivering tighter TLTRO terms than expected, and not (at least in the policy statement) opening the door to lower rates through the forward guidance period.
Key Quotes
“This likely suggests that the ECB is not as pessimistic about the outlook as some in the market have been. We expect the forecasts due out at 1:30pm BST to show an upgrade to growth in 2019, but downward revisions to core inflation (headline unchanged this year on higher oil prices).”
“As we turn to press conference at 1:30pm BST, we look for President Draghi to reiterate many of April’s press conference themes: in particular, that the ECB stands ready to act and that it has a strong desire to return inflation target urgently.”
“Key will be how Draghi answers any questions about possible rate cuts. We expect him to stress that they expect rates to remain at their current levels for at least the next year, at which point inflation will have started to converge on target (read: no cuts).”
“But at the same time, he will have to acknowledge that with risks tilted to the downside, should something like a trade war break out, the ECB would stand ready to act with all its policy tools in order to return inflation to target in a sustainable way, leaving just a small door open to easing should it be required.”
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