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With an economic rebound and rising inflation emboldening hawks, the European Central Bank could reaffirm its intention to buy bonds at a pace necessary to maintain easy financing conditions after its meeting on Thursday, but steer shy of promising to maintain its current EUR80 billion a month throughout the summer.
The ECB could remove the phrase "significantly higher pace" from its introductory statement, as officials may argue it is no longer applicable after its having been introduced during a spike in bond yields in March. With differences of opinion apparent between Governing Council members who regard any rise in yields as undesirable and those who view them as a sign of increased confidence, the ECB may also reaffirm its intention to only use the full EUR1.85 trillion envelope of its Pandemic Emergency Purchase Programme if necessary.
June's Eurosystem staff macroeconomic projections could show a minor uptick in GDP growth forecasts and inflation will probably be revised upwards. However president Christine Lagarde is once again expected to emphasise that the rising rate of price increases represents only a short-term spike, not a change to the ECB's medium-term baseline scenario.
BALANCE OF RISKS
Lagarde has struck an optimistic tone at recent press conferences, though any deviation from her assessment of the risk outlook as "more balanced" - a phrase first used in March and repeated last month - would be a surprise. The emergence of new Covid variants and slow progress in global vaccination means short-term uncertainty remains high - as underlined by chief economist Philip Lane, who recently emphasised the difference between a strong rebound and full-blown recovery.
Press scrutiny is likely to focus on the timing of any definitive announcement that PEPP will end as scheduled in March 2022, on post-PEPP QE tools, and the conclusion of the ECB's strategy review, with particular reference toinflation measurement and targetting. The ECB's climate objectives - and their relationship to its primary mandate of price stability - could also come under scrutiny.
The ECB will leave its deposit rate at -0.5%, and other benchmark rates will unchanged.