ECB Preview: “Will He, Or Won’t He”, And Now To Trade The Announcement

Will he, or won’t he?

Today’s ECB meeting is when Mario Draghi unveils the “guidance switch”, hinting if not at the (eventual) interest rate increase then at least a small step toward a QE exit; that was before Bloomberg’s trial balloon hit.

As reported earlier, a Bloomberg “sources” story suggested that the ECB will cut its inflation forecasts to 1.5% (from 1.7%, 1.6% and 1.7% for 2017, 2018 and 2019, respectively). If confirmed, this would be rather dovish, and may put any “switch-over” plans on indefinite hold. According to SocGen, although the report cites the recent fall in energy prices behind the forecast change, this wouldn’t explain the two-tenths change for 2019, which would need to be explained by a downward revision of core inflation (which remained very optimistic at 1.8%).

The other key elements to focus on will be the risk assessment for growth and the rate guidance. On the first one, the ECB is expected a move to a “broadly balanced” risk profile. That is understandable given the recent trend in business confidence and progress in labour markets. Analysts also expect the ECB to drop the “or lower” and a dropping of the word “well” in “well past.”

That’s the short preview version. Below, courtesy of ABN Amro is the longer one.