In view of analysts at ABN AMRO, ECB’s forthcoming meet on Thursday will have attention firmly focused on the macro projections, forward guidance and a possible new TLTRO.
“It is obvious that the ECB staff macro projections will see significant downgrades. The main uncertainty is the matter of extent. Our sense is that 2019 forecasts will see the largest revisions, though we also expect to see a moderate downgrade to core inflation in 2020. Meanwhile, on the back of the deterioration in the economic outlook and a significant fall in market inflation expectations, we expect the ECB to react.”
“We think the Governing Council will change its forward guidance on policy rates.”
“We think the ECB will eventually announce a new TLTRO programme as well, though the March meeting might be too early to expect this.”
“The ECB will publish its new staff macroeconomic projections on Thursday. Based on the economic data that has been published since the ECB’s previous forecasts of 13 December 2018, the growth projections should be revised lower.”
“With regards to the ECB’s projections for core and headline inflation in 2019, we expect a modest downward revisions, largely because of the lower growth projections.”
“That said, we think the weakness in global trade and the global industrial sector will persist for a while, and that the ECB will probably have to make further downward revisions to its projections for growth and inflation at a later stage.”
“If we are right that the ECB will change its forward guidance and provide a stronger hint that a TLTRO is on the way, we think it would be clearly a dovish message for financial markets.”