MNI ECB SOURCES: ECB Eyes March For Text Change, APP Call June

--ECB Asset Purchases Could Be Extended To No Longer Than Year End

--Governing Council Sanguine Over Euro Strength Vs Dollar

By Christian Vits

     FRANKFURT (MNI) - The European Central Bank's Governing Council will likely

focus on its March meeting to decide whether to alter the wording of its current

forward guidance and wait until June before announcing an end-date for its asset

purchase programme, Eurosystem sources told Market News.

     In March, the ECB will get the next assessment about growth and inflation

for this year through to 2020, paving the way to communicate its way forward.

     "The resistance to a change in the wording with respect to the forward

guidance has been remarkably strong from (ECB President Mario) Draghi and (Vice

President Vitor) Constancio," one source said. 

     "The extent of change has been the alteration -- which is documented in the

accounts -- to say that the wording will be revisited at the beginning of the

new year," he added.

     "There will be -- if at all -- only minor changes in the wording before

March," the first source said. 

     "As we haven't seen much fundamental movement on the inflation side we will

have to wait until March, for the next projections. Much will hinge on

(Executive Board member Benoit) Coeure, how he positions himself, whether there

will be a bigger change in the wording," the source added.

     According to a second source, the time is nearing when the Bank will have

to be more explicit in linking future policy moves to how quickly inflation is

moving towards target.

     "At one point in time we should say that the outlook for interest rates is

dependent on the path and the speed how inflation moves towards 2%", the second

source said. "The earlier the better."

     In June, when the second assessment of the ECB's forecasts for this year

are due, it might be the right time to announce an end-date for the asset

purchase program, the first source said. 

     "This is the time when you can terminate the asset purchases, based on the

new projections," the second source noted.

--APP END ANNOUNCEMENT

     Although ending bond purchases in September is still an option, the ECB may

extend its asset purchase program to no longer than the end of the year, the

first source told Market News.

     "There is a palpable shift of sentiment in the Council with respect to the

end of the asset purchase program," the first source said. "I would not expect

too much fighting about an extension to December."

     "I would be pretty surprised, if we did not end the program at the end of

the year -- at the latest," the source said. 

     "The argument to end purchases has certainly gained importance, so, whether

this means going to zero after September or to find a compromise for the

remaining three months to the year-end doesn't matter too much - its cosmetics."

     Back in October, the ECB halved its monthly bond buys to E30 billion,

starting in January, and committed to continue its purchases until September

this year, with an open-ended scheme in mind.

     "The fact that even the announcement to halve the monthly asset buys has

not had any effect on the markets shows that there is no impact of the asset

buys anymore," the second source commented. 

     "From my viewpoint the markets are already disregarding whether the ECB is

buying 30 billion, 10 billion or nothing," the second source added.

--REVERSING NEGATIVE RATES

     Discussing the timeframe as to when the ECB may feel inclined to raise

interest rates after ending asset purchases, the sources were not aligned.

     An interest rate hike, envisaged 'well past the horizon of our net asset

purchases' might be no further away than two quarters after the end of the asset

purchases, but risks remain, the first source said. 

     "I expect a minimum of two quarters," the first source added. "It all

depends on whether we will see an unexpected rise in inflation, but apart from

this, the doves may argue in favour of a longer time horizon."

     The other source underlined that the timeframe is "completely open. First

of all, you have to change the wording. But I think that we will see action in

due course."

     With regard to the recent appreciation of the euro against the dollar,

which currently sits near a three-year high of $1.2260 the sources seemed rather

relaxed, saying there is NO need to follow the currency at the moment.

--MNI Frankfurt Bureau; +49 69 97782671; email: christian.vits@marketnews.com

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

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