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By Luke Heighton
     FRANKFURT(MNI) - The possibility of tiering the deposit rate and conditions
for a fresh upcoming round of cheap financing for banks will be key topics for
investors to monitor after what is expected to be a relatively uneventful
European Central Bank meeting in Frankfurt on Wednesday.
     Here are issues to look out for from Wednesday's statement and press
conference.
     --TIERING AND NEGATIVE RATES
     Surprise remarks by President Mario Draghi last month that the ECB needed
to look at ways to help lenders cope with negative rates prompted speculation
that tiering of the deposit rate and even further interest cuts might be on the
horizon. Draghi's responses to journalists' questions will be parsed for any
hint of such a move, even if, as one ECB official told MNI, the fact that a
measure may be under consideration doesn't mean it will enacted, and just
because "a couple of ECB economists are studying the impact of a trade deal with
Mars [...] it doesn't mean it's yet anywhere near the mainstream discussion."
     --TLTROs
     As the official account of the ECB's March meeting showed, there was broad
agreement that elaborating the details of a third round of targeted longer-term
refinancing operations "would need more reflection." That, plus the arrival in
June of updated ECB staff macroeconomic projections, implies policymakers would
prefer to delay any pronouncements on the spread and other conditions of the
cheap loans due in September until as late as possible. Questions are likely to
focus on whether conditions will be similar to or less favourable than TLTRO-II,
of if a dip in confidence may lead to something more generous.
     --GROWTH, INFLATION AND THE ECB'S MANDATE
     With further downward revisions to the ECB's growth forecasts expected,
progress toward the 2% inflation target "delayed", and Draghi admitting the
relationship between higher labour costs and higher prices may have
"structurally changed", concern is growing over the macroeconomic outlook.
Continuing downside risks coming from China, the U.S. and globally, would appear
to add weight to fears that eurozone growth "might not be mean-reverting, as
typically assumed in projections." While a majority of governors maintain their
confidence (at least in public), in reaching the ECB's medium-term inflation
target of 2% scepticism abounds as to the number and effectiveness of the
monetary policy weapons left in the ECB's arsenal - QE included.
     The ECB's persistent failure to meet its inflation target has prompted a
call by Finnish central bank chief Olli Rehn for a strategic review of the ECB's
"principles, key assumptions and instruments underlying its monetary policy."
     --FORWARD GUIDANCE AND DRAGHI'S SUCCESSOR
     With markets now not pricing in a hike until the start of 2021, any need to
adjust forward guidance in the short-term is moot. What isn't clear is the
extent to which decisions taken now tie the hands of Draghi's successor, whoever
he (or she?) may be, or whether that might be the intended outcome, given the
apparent resurgence of at least one prominent hawk in the race for the ECB's top
job.
--MNI London Bureau; +44 203 865 3829; email: jason.webb@marketnews.com
[TOPICS: M$E$$$,M$X$$$,MI$$$$,MT$$$$,MX$$$$,M$$EC$]