The European Central Bank is set to leave its policy unchanged and take stock of the improving economic environment amid growing US demand and hopes for a significant rebound. Christine Lagarde, President of the ECB, will likely be asked about the bank’s bond-buying scheme and if it intends to taper it down at any point.
Here you can find the forecasts by the economists and researchers of 11 major banks regarding the Interest and Deposit Rate Decision due out at 11:45 GMT.
Ahead of the ECB’s announcement, EUR/USD has pulled itself from below 1.20 as US Treasury yields have been on the back foot, dragging the dollar down.
Rabobank
“We expect the deposit rate unchanged at -0.50%, APP steady at EUR20 B/month and the PEPP envelope unchanged at EUR1,850 B. We don’t expect new guidance on the PEPP pace until June, when the ECB may revert the recently increased pace – unless the outlook worsens or spill-overs from US yields intensify.”
Danske Bank
“We expect the growth outlook to be ‘broadly balanced’ paving the way for the PEPP purchase pace going back to February levels around EUR60 B after the June meeting. We think Lagarde will repeat the ‘delayed and not derailed’ recovery narrative. While we expect the June meeting will conclude in a lower PEPP buying, the battle about PEPP’s future is set for September in our view. We read the ECB as a central bank that is slowly paving the way to exit the crisis response tools. Therefore, we expect ECB to end PEPP net purchases no later than March 2022, leaving reinvestments, net APP purchases and another round of TLTROs as the policy mix beyond March 2022. We expect markets to trade mostly sideways through the press conference”
Capital Economics
“After promising a ‘significant’ increase in bond purchases in March, the ECB Governing Council will not make any policy changes. Officials may try again to explain how they judge whether financing conditions are favourable, but the more they say, the less clear their message seems to be. Meanwhile, the Bank will continue with PEPP purchases of around EUR15-20 B per week for the coming month or two, meaning bond yields will probably stay around their current levels.”
Nomura
“We don’t expect any further adjustments to monetary policy. We think the ECB will signal upside risks to the staff’s March macroeconomic projections. At the same time, we expect the Governing Council to highlight how the ECB’s medium-term inflation forecast remains short of its target and its pre-pandemic profile.”
ING
“The ECB will look through any temporary increases in headline inflation and will not accept any increases in bond yields unless they are the result of improved growth prospects. The ECB should try to bridge the time to the June meeting without any new communication accident.”
TDS
“The upcoming ECB meeting should be fairly uneventful, with no new macro forecasts, and no reason to alter the current, elevated pace of PEPP purchases. We do not expect the April Governing Council meeting to provide a strong directional cue for the euro, particularly as the FOMC is set to follow a few days later. Ahead of this, we note that EUR/USD has struggled to push above 1.20 in this cycle amid signs that upward momentum may be fading. Spot remains anchored between the 100-DMA and 200-DMAma for now, but we think a further pullback would see investors pivot to a sell-rallies stance.”
Deutsche Bank
“A change in the policy stance is unlikely, and that a decision on whether or not to maintain the new faster pace of PEPP purchases will be made after a joint assessment of financing conditions and the inflation outlook at the Governing Council’s next monetary policy meeting in June. However, at this point it’s unclear whether they will maintain that higher pace beyond June. Although a latent recovery is building and ‘net-net’ issuance (net issuance, net of ECB purchases) ought to turn favourable for rates markets following the Q1 spike, the ECB consensus is cautious and determined to avoid a premature tightening in financing conditions.”
Nordea
“Neither the economic situation nor the inflation outlook has changed materially since the ECB decided to significantly increase the pace of its bond purchases at the March meeting, while delays in the vaccination process threaten to push the recovery somewhat further into the future. In this the press conference, Lagarde will no doubt face questions about whether the recent pace of bond purchases constitutes a significant increase. While the Easter holidays distorted the weekly buying numbers in early April, it is hard to argue that the pace of buying would have seen more than a rather modest increase since the ECB’s March decision. Based on the recent data, the significantly higher pace likely means around EUR20 B per week in net terms. We do not expect to see any major market reactions to this ECB meeting, but if we have to take a stance, we see risks tilted towards a slightly hawkish market reaction, as Lagarde may struggle to defend the changed pace of purchases as being that significant in light of the recent numbers.”
MUFG
“Market participants are already beginning to anticipate that the ECB will begin to scale back purchases in Q3. However, we do not expect the ECB to provide a clear signal as soon as this week on the pace of QE purchases beyond Q2. The recent pick-up in the pace of vaccinations in major eurozone countries is helping to ease the pessimism towards the euro that built up in Q1, and will also ease some pressure on the ECB to maintain faster QE purchases for longer.”
ABN Amro
“The monetary policy meeting of the Governing Council is unlikely to result in new policy announcements, however, investors will be looking for more clarity on two issues. First, the ECB’s strategy with regards to capping government bond yields. Second, on how the central bank’s views on the economic outlook are developing. The ECB will likely hold its cards somewhat close to its chest on both these topics at the April meeting, given that in June it will update its projections and will also consider whether to sustain the step-up of purchases in Q3. So significant further communication from the ECB may not come until the June meeting. More fundamentally, we judge that the view that the medium-term outlook for inflation remains weak (and unsatisfactory relative to the ECB’s goal) will remain in place in the coming quarters. Despite a strong recovery in the second half of the year, a large output gap will remain in place that will continue to bear down on underlying inflationary pressures. Against this background, the rate hike cycle priced in by markets over the coming years, which has been the key factor driving up yields, looks unlikely.”
Citibank
“The ECB meeting is unlikely to be a major event this time round. Very little has changed since the March meeting and we expect the ECB to reiterate its guidance on rates and reinvestments as well its expectation that purchases under the PEPP in 2Q-21 will be conducted at a significantly higher pace than during the first months of 2021.”
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