ECB rate meeting

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European Central Bank President Mario Draghi will have a tricky task next Thursday: give just enough clues about the bank's next move but not fuel undue expectations that could perturb markets.

China will also be in spotlight in the coming week, reporting third quarter GDP figures on Wednesday, with data likely showing steady growth at 6.7 percent, as increased budget spending and a property boom offset stubbornly weak exports.

The ECB is facing weak growth and super-low inflation, which means Draghi will have to persuade investors that the ECB is ready to pull the trigger on more stimulus at the same time that he preserves an escape route since the bank has already done unprecedented easing and its room to maneuver is limited.

The question to decide is whether to extend an 80-billion euro per month asset purchase program, due to run out in March, or start dialing back stimulus.

It will be tough call as the hawks, including Germany, the bloc's biggest economy, oppose any further easing. But a decision is seen as premature as the euro zone economy is humming along, giving Draghi some time refine options.

A Reuters poll on Thursday found economists expecting no change in the coming week's meeting but a tweak of policy in December. [ECILT/EU]

On the macro front, industrial production is rebounding, confidence is holding up, government budgets may provide a touch more stimulus next year and oil prices are nudging higher, lifting up inflation prospects.

Draghi has already said that inflation could rise to ECB's target of close to 2 percent by late 2018 or early 2019, an unusually upbeat projection.

Yet the bank has warned that underlying price pressures still lacked a convincing upward trend and its projections were predicated on "very substantial" monetary support, signals analysts said pointed to an extension of asset buys.

Technical constrains, such as low bond yields and asset scarcity, have also eased in recent weeks, giving the ECB time to adjust the asset buying scheme's parameters.

"Macro developments since the September meeting have not put the ECB in a hurry to present additional monetary actions," ING economist Carsten Brzeski said.

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ECB leaves interest rates unchanged at October 2016 meeting

ECB governing council meeting announcement 20 October 2016

  • Main refinancing rate 0.0%
  • Deposit rate -0.40%
  • Marginal lending rate 0.25%
  • QE unchanged at €80bn per month
  • Repeats: QE to run to March 2017 or beyond if necessary


Monetary policy decisions

20 October 2016

At today's meeting the Governing Council of the ECB decided that the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will remain unchanged at 0.00%, 0.25% and -0.40% respectively. The Governing Council continues to expect the key ECB interest rates to remain at present or lower levels for an extended period of time, and well past the horizon of the net asset purchases.

Regarding non-standard monetary policy measures, the Governing Council confirms that the monthly asset purchases of €80 billion are intended to run until the end of March 2017, or beyond, if necessary, and in any case until it sees a sustained adjustment in the path of inflation consistent with its inflation aim.


ECB’s Draghi: Decisions Will Be Taken In December, Market Reverses Sharply

In his press conference following the ECB Council meeting, President Draghi stated that the governing council is still committed to preserving the very substantial degree of monetary accommodation in the Eurozone. He also stated that the bank will continue to act, if warranted, by using all instruments available.

The main message from ECB President Draghi was that the ECB would take further decisions at the December meeting. At that meeting, the Governing Council will benefit from the new staff projections extending to 2019.

In response to questioning, Draghi stated that there had been no discussion at this meeting of extending the bond programme beyond March 2017.

Draghi also stated that there was no discussion of tapering but, when pressed, he also stated that in his personal view, an abrupt end to tapering was unlikely.

Regarding the current bond programme, Draghi stated that there was no problem with scarcity of bonds to buy and that the programme was running smoothly.

On the economic side, he stated that the eurozone economy is continuing to post a moderate recovery and a gradual rise in inflation with the rate set to rise over the next two months due to base effects. The economy had also shown resilience, although the risks were still tilted to the downside.

He also commented that there is no convincing upward trend in underlying inflation and that the bank wants a convergence, which is self-sustained, without the extraordinary support in place now.

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ECB meets Thursday - what to expect (preview)

No change expected to any rates

  • Refinancing rate expected to remain unchanged at 0%
  • Marginal lending rate expected to remain unchanged at 0.25%
  • Deposit Facility rate expected to remain unchanged  at -0.4%
OK ... the fine print (this via Reuters, more there if you are after it), In brief:
  • Euro zone growth and inflation slowly picking up pace
  • ECB to say that its extra-easy policy stance is still needed to keep the recovery on course
  • Set to maintain a promise for lengthy stimulus, having extended its bond-buying program just last month ... Draghi will note the recovery is not self-sustaining, underlying inflation is weak and political risk from key elections weighs on the outlook ... So turning down the ECB taps now is inappropriate, he is expected to say
  • Inflation hit a three year high last month ... but still just half of the bank's 2 percent target and the jump is mostly down to higher oil prices while underlying price growth remains dangerously weak
  • Manufacturing activity is accelerating
  • Confidence indicators are firming, all pointing to solid growth at the end of last year
  • Euro zone business growth was the fastest in more than five years in December
  • Order books are surging on export demand
  • Consumption is holding up
The European Central Bank announcement is due at 1245GMT
President Draghi's press conference will follow, due at 1330GMT
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