MNI SOURCES: ECB June MonPol Meet Set To Play For More Time

--No June 14 Decision Expected On APP End Date, Taper

--Need To Look At Overall Accommodative Picture Beyond APP

--Italy Seen As Elephant In The Room

--Comments Gathered Ahead Release May Flash Eurozone Inflation Data

     LONDON (MNI) - Anyone expecting a game-changing communique following the

European Central Bank's June 14 Governing Council meeting could be disappointed,

with ECB policymakers likely to play for time amid slower growth and political

disturbance, Eurosystem sources have indicated to MNI.

     A senior Eurosystem source argued that both the "tone" and "emphasis" of

the key message so far conveyed by the ECB of continuing the APP until September

or beyond if needed remained essentially unchanged, although it had been

strengthened with other "wording inputs".

     "There is unanimous consensus within the Governing Council on this. The

possibility and appropriateness of extending the program beyond September, and

how, in case of doing so, is expected to be weighed and discussed only then,"

the source said.

     The fact that in statements from central banks across the bloc the usual

form of wording had been cut down to simply "at least until September" did not

change in any way the chances for or against extending the programme in

September, he added.

     The communication strategy is likely to remain close to current levels,

with more clarity and a shift from a market-driven need for an APP-end date

towards the need to "look beyond", with a 360 degree perspective.

     --ACCOMODATIVE POLICY CONTINUES

     It is also crucial for the ECB to convey the message that the APP

termination, far from being apocalyptic, would not be "the end of the road" of

accommodative monetary policy, stressed the source.

     "We want to shift the focus towards the overall picture. The APP is just

one leg. There are also the stock of financial assets in the portfolios of

central banks and their reinvestment at maturity that will continue, topped with

our forward guidance on interest rates which at present foresees a first rate

hike faraway in time," the source said. 

     "So there's a lot on the table that acts as a parachute to ease the exit,

to reassure and ensure a wide degree of expansionary approach," he added.

     Such a strategic focus shift is plausible even considering the degree of

caution needed in major APP communication changes, the senior Eurosystem

official noted.

     Much will depend on fresh inflation and growth data across the eurozone,

with a focus on the June data, which could cause a small 'bump' along the road

if the new outlook isn't in line with expectations.

     While none of the sources would commit to how or when the APP would finally

end, the view of one source, suggesting an APP termination by year end, with a

gradual taper from September, wasn't seen as an unreasonable reading of the

situation.

     --RECOVERY ONGOING

     The source, speaking ahead of the release of the May flash inflation data,

noted inflation was nearing target, but remained subdued overall. 

     As for growth, while noting the slowdown since the start of the year, the

official expressed confidence that the deceleration in growth would reveal

itself to be only a "temporary and a natural reaction" following previous peak

exports and business confidence across the EU, and reflecting a global downside

trend.

     "So unfortunately (for growth) we're a bit more on the 'less' side, so far,

of what we expected", the first source pointed-out.

     Other sources also saw the recovery intact, despite the softer data in the

first few months of the year. Italy, obviously a source of concern for the

Governing Council even if not for public utterance, was unlikely to divert the

policy discussion, as the old ECB mantra of policy being set for all not one

would again win through.

     --WHO WILL OVERSEE HIKES

     From talks with sources, MNI understands that following the end of APP, the

discussion on raising rates -- although remaining data dependant -- could be

focused for around the time President Mario Draghi steps down next autumn, and

whether he, or his successor, gets to pull the trigger.

     But before the actual debate over higher rates gets underway, an upward

'tweak' to the deposit rate is likely to break the asymmetry between the various

ECB rates.

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