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MNI (London)
By Luke Heighton
     FRANKFURT (MNI) - Eurozone economic data continues to weaken but while it
is possible the European Central Bank's March meeting could see some
enlightenment on the Governing Council's current thinking on fresh targeted
loans for banks, it is unlikely to produce any tweaks to their forward guidance
on rates.
     As the ECB staff publish their latest forecasts, the GC will also question
whether the recent dip for the economy is temporary or the start of a
longer-lasting downturn.
     Here are key issues to look for in Thursday's statement and following press
     Eurosystem sources were divided on whether new targeted longer-term
refinancing operations will be announced in March, with many saying a decision
is more likely closer to June's meeting. As the account of January's meeting
noted, the Governing Council took the view that technical preparations for a
fresh round of TLTROs should "proceed swiftly", even if a decision on their use
should not be taken "too hastily." New TLTROs are likely to have shorter
maturities -- at two years -- and less generous terms than previous rounds, they
said. Others mentioned the possibility that the repayment deadline for existing
loans could be extended. But there are signs of resistance to the idea in
certain quarters. Bank of Finland Governor Olli Rehn's recent remark that there
needs to be a "clear and convincing monetary policy case" echoed comments made
by the Bundesbank's Jens Weidmann and the Bank of France's Francois Villeroy de
     MNI sources saw a lower probability of a change to the wording of interest
rate forward guidance at the March meeting, but the "through the summer"
formulation introduced in June 2018 will lose its relevance before the departure
of bank's president, Mario Draghi, at the end of October. The ECB could
streamline its forward guidance to simply emphasise that interest rates will
remain unchanged for "as long as necessary" once it drops its reference to
"through the summer of 2019" at some point over the next few months, Eurosystem
sources told MNI. 
     Chief Economist Peter Praet has said there will be a "point in time when
the calendar-based leg of our forward guidance will be discussed and, if needed,
adapted." It is likely that the issue will be on this month's agenda and a
possible timetable for future decisions could even be raised. However, in the
words of one Eurosystem source "the idea would be to shift the end date until
after the date the new president comes in. That's perhaps most important".
     After January's recognition that the balance of risks has shifted to the
downside, there is little prospect of a change this time round. Yet the
possibility that risks to growth could lead to downside inflation risks in the
medium term is something that has been preoccupying Peter Praet, to the extent
that he has said it will be "an important discussion point at the next meetings
of the ECB's Governing Council". The threat of 25% tariffs on European cars
entering the US -- which MNI analysis has shown could knock 0.2pp from annual EU
GDP growth and a chunky 0.6pp from the German economy -- will be a point of
concern, as could be a disorderly Brexit.
     ECB officials have said the slowdown is likely to be temporary. But Bank
staff forecasts are likely to be downgraded. The account of January's meeting
showed there was "broad agreement" that headline inflation was likely to
decrease further over the coming months, and officials have admitted that the
passthrough from wage developments to consumer price increases "has not not
worked out as expected." Despite these doubts, Thursday's message is likely to
be close to the assertion of Vice President Luis De Guindos that "even if energy
prices were to fall a little in the coming months, we are confident that
inflation will, over the medium term, converge towards our aim of below, but
close to, 2%."
--MNI London Bureau; tel: +44 203-586-2225; email:
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MNI London Bureau | +44 203-865-3812 |