MNI STATE OF PLAY: ECB Remains in Low Gear, Watch Projections

--Updated Staff Projections Likely ECB Stand Out Feature

By Christian Vits

     FRANKFURT (MNI) - Early year market expectations that the European Central

Bank would make some significant changes to the wording of the post-meeting

statement in March have all but disappeared, with many watchers now forecasting

another month with the status quo intact.

     Former European Central Bank President Jean-Claude Trichet would possibly

have said "it is of the essence" to find an exit point to the bank's asset

purchase programme. That's not how current President Mario Draghi's will likely

play it, though.

     His position may be to leave it as it is. No wording change in the

statement -- at least nothing fundamental -- and no insight into the Governing

Council's thoughts about an exit from its extraordinary measures.

     "If he really wants to enforce his position, he will succeed -- he is the

President," a well-placed Eurosystem source told MNI about Draghi.

     --STAFF PROJECTIONS

     Although radio silence on policy change is likely, we will at least get the

fresh staff projections. These will be mostly unchanged, underlining the current

policy stance.

     Financial market turbulence could be another argument to stick to the

policy statement's present wording. "An argument which certainly will be

mentioned. Constancio almost always notes this and that [the more dovish] part

of the council will follow," the Eurosystem source explained.

     "(Chief Economist Peter) Praet and (Executive Board member Benoit) Coeure

are essential, how they present the matter at the beginning of the session," the

source said, pointing out that Coeure has taken more independent positions in

the past. "In the meantime, it seems not so much coordinated with Draghi

anymore, Coeure more or less takes his own decisions."

     As noted in the last minutes about the policy meeting, there is some

opposition. It showed that the Governing Council believed, "the language

pertaining to the monetary policy stance could be revisited early this year as

part of the regular reassessment at the forthcoming monetary policy meetings."

     Against this background, the sentence that the Governing Council stands

ready to increase the asset purchase programme in terms of size and/or duration

could be dropped.

     At the same time, there is no concrete commitment to a change in the

wording, and "early this year", a phrase used in the minutes of the December

meeting when talking about discussing a change in guidance, could conceivably

mean as late as April.

     --DATA DEPENDENCY

     There is unlikely to be much clarification over the central bank's policy.

"It was concluded that such an adjustment was premature and not yet justified by

the stronger confidence," the report of the January meeting said.

     What's more, latest data haven't strengthened the case of those arguing in

favour of a wording change. Inflation fell to 1.2% in February, down from 1.3%

in the previous month and business sentiment over the outlook slipped, although

sentiment about the current state remained positive.

     Draghi might also highlight the euro's recent appreciation, which has

gained 5.3% against the dollar over the last three months, another headwind for

both growth and inflation.

     And political problems remain: While political deadlock in Germany has been

resolved with the two-third majority vote of the Social Democrats for a grand

coalition with the conservatives, Italy faces a huge challenge to form a

government.

     On top of such concerns, U.S. President Donald Trump's announcement of

tariffs on steel and aluminium and his threat to impose them on European

automobiles as well, could weigh on the growth outlook of export-led European

economies, particularly Germany, the Eurozone's growth engine.

     Given all this, the Governing Council may conclude to keep calm, remaining

cautious one more time. But a change to a slightly tougher stance on policy

might be not too far away.

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

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