MNI SOURCES:More Poor Data Could Lead ECB To Consider Guidance

--ECB To Cut Growth Forecasts

--Further Poor Data Could Prompt Discussion Of "Through The Summer" Guidance

--Announcement On TLTROs May Not Come In March

     LONDON (MNI) - The European Central Bank is set to reduce its growth

forecasts, and further poor data ahead of its March 7 meeting could prompt

discussion of a dovish change to current guidance for rates to stay on hold at

least through the summer, eurosystem sources said.

     With Italy entering technical recession and Germany only narrowly avoiding

two consecutive quarters of contraction as the U.S.-China trade dispute weighs

on the world economy, ECB officials are increasingly concerned that what they

had initially regarded as a temporary slowdown is settling in for a longer stay.

While new measures, including a fresh round of cheap financing for banks via

targeted longer-term refinancing operations are already under consideration,

some feel guidance may no longer provide sufficient reassurance that rates will

stay low for an extended period.

     "Some governors argued that this [slowdown] might be more long-lasting, but

the clear majority was of the opinion that it's still in line with projections,"

one eurosystem official told MNI, referring to the ECB's January meeting. "But

this will soon be a very difficult discussion."

     Key will be whether cooling data saps inflation, the official said: "If

this changes considerably in March then I would at least expect some changes in

the forward guidance."

     The growth forecast for 2019, set at 1.7% in December, could be cut to

1.5%, or even 1.4%, another source said. The estimate will be based on data

available until the end of February.

     A third eurosystem official said guidance was likely to be adjusted in

March, and that interest rates were unlikely to move for a couple of years.

Others though, were more cautious, with one saying the central bank would seek

to avoid any material alteration so soon after its promise in December to

continue reinvesting the principal of maturing securities from its stock of

bonds for an extended period of time past the date when it first raises interest

rates.

     While a dramatic deterioration to the outlook might lead to a revision,

this is not to the most likely scenario, another source said: "Especially not in

the statement, though the press conference might see some softening, postponing

or prolonging the commitment to keep rates stable."

     --TLTROs

     A focus of keen market attention will be any further signs that the ECB is

preparing a fresh round of cheap bank financing. Existing TLTROs come due in

2020 and 2021, but they begin to become ineligible for banks' net stable funding

ratio calculations as of the middle of this year, potentially causing particular

problems for lenders in Italy.

     ECB President Mario Draghi has said that TLTROs were raised at the January

meeting. Most officials who spoke to MNI said that while a decision on the

matter would be relatively simple, it was not necessarily imminent, despite the

looming deadline for some banks.

     "The technical committees have not yet formally addressed the issue of

TLTROs, but so far we are all unanimous that an abundant level of liquidity must

be guaranteed across the eurozone and we have all possible means to do that,"

one official said. "Our toolbox is unlimited and if needed, whatever instruments

we decide to adopt, will depend on the nature and scope of our intervention.

TLTROs are just one option on the table."

     The fact that TLTROs are needed more urgently by some banks than others

makes the decision more complex, another ECB source said.

     "There must be a monetary policy case, it can't just be for one country or

region," the source said, adding that fresh loans could also be of a shorter

duration than existing TLTROs, with maturities of perhaps one or two years. "The

longer the downturn, the more a monetary policy case can be made to keep the

TLTROs going."

     --OTHER TOOLS

     Other potential tools occasionally mentioned in ECB meetings include the

possibility of a tiered increase to the deposit rate, now at -0.4%. This would

raise the rate for a certain proportion of commercial banks' deposits with the

ECB more than for the remainder, which some have argued would alleviate pressure

on net interest margins without unduly encouraging lenders to leave too much

money at the central bank.

     But no such move seems imminent, with one official saying: "We have a

three-rate structure in place and I can't see any appetite for further

complicating a system for what would only likely be marginal gains."

     No more than a third of Governing Council members at the last meeting

advocated a change to the deposit rate this year, one official said.

     "We all know who the hawks are," another said. "The division of views

within the Council persists."

     An ECB spokesman said he had no comment on the likely deliberations in the

March meeting.

--MNI London Bureau; +44 203 865 3829; email: jason.webb@marketnews.com

[TOPICS: M$X$$$,MT$$$$,MX$$$$,M$$EC$]