Fra BNP Paribas:
Eurozone: ECB January meeting account under scrutiny The European Central Bank’s January meeting account on Thursday will be scrutinised to better understand the ECB’s reading of the latest economic developments.
At the January press conference, ECB President Mario Draghi sounded somewhat more optimistic on the growth outlook, but appeared keen to downplay the implications of recent developments on monetary policy by sticking to the line that underlying price pressures remain subdued and risks to the growth outlook are still tilted to the downside.
Pressured by the press on the implications of the recent spike in headline inflation, the ECB president listed the conditions needed for inflation to meet the ECB’s aim for a sustainable adjustment, suggesting that the ECB will look through the current spike, given its likely transient nature.
Mr Draghi also highlighted the Board was unanimous that the decision taken at the December meeting to scale back asset purchases was appropriate; this could have been an attempt to quell speculation on internal divisions.
This contrasted with the wide variety of positions on the best course of action revealed in the account of the December meeting. In this respect, the details of the January discussion will be important to get a better sense of the contours of opinions within the Governing Council.
In any case, our impression is that the debate is evolving rapidly on the back of robust economic data. Last week’s comments from Executive Board member Yves Mersch, who questioned how long the ECB can continue to talk about “even lower rates”, are a case in point.
We doubt this debate will be evident in the account to the January meeting as accounts by their nature are somewhat backwards-looking. Thursday’s calendar includes speeches from Mr Nowotny and Mr Cœuré, which will probably be more informative on the state of the monetary policy debate. We expect the ECB’s rhetoric to shift at the March meeting when Mr Draghi is likely to acknowledge that downside risks have diminished or, perhaps, have become more balanced. In turn, this could pave the way for a change in the forward guidance on interest rates along the lines suggested by Mr Mersch last week. However, we believe we will have to wait until June for the ECB to formally open a debate on its exit strategy.
