Eurozone: Light on Action, Heavy on Words - ING
Carsten Brzeski, Chief Economist at ING, suggests that after months of excitement and two new attempts by the ECB to revive the Eurozone economy, tomorrow’s ECB meeting should be light on new action.
“Macro data since the March meeting has been mixed. In sum, the picture of the Eurozone economy has not fundamentally changed since the March meeting. It’s the picture of weak, albeit above zero, growth surrounded by high downside risks; not only stemming from the outside but increasingly also from the inside.
With the failed talks in Doha, any quick increase in oil prices has become less likely. To the contrary, oil prices might even drop again, at least temporarily, taking away upside pressure on Eurozone inflation. Moreover, the stronger euro will also keep any acceleration of inflation at bay, providing the ECB with ample room to justify its loose monetary policy stance. In particular, the reaction of the euro exchange rate after the March meeting can hardly have been appreciated by the ECB. It seems as if the transmission channel ‘exchange rate’ can no longer be affected by the ECB, but only by the Fed. Thus, we expect the ECB to send a dovish signal, stressing the downside risks to the economic outlook and reconfirming the ECB’s willingness to do more if needed.
In the absence of any new policy measures, most attention at the press conference will very likely be on the recent war of words, with many German observers, so-called experts and politicians having started a new round of verbal attacks on the ECB and its current monetary policy stance.
In our view, the ECB will try to keep a very matter-of-fact tone in this debate but will remain very tough on the content, probably referring to Article 130 of the Treaties, which is very clear on the ECB’s independence.
All in all, any new measures at the current juncture would be more surprising than Albania winning this year’s European soccer championship. The only tangible from tomorrow’s ECB meeting should be details on the corporate bond-buying programme. However, given the recent war of words from Germany against the ECB, the press conference should be anything but boring. Expect an ECB meeting that is light on action but heavy on words.”
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