REPEAT: STATE OF PLAY: Expect No Surprises From Jan ECB Meet

Repeats Story Initially Transmitted at 07:52 GMT Jan 24/02:52 EST Jan 24

--No Change In Guidance Expected Until March

--Governing Council Remains Sanguine Over Exchange Rate

By Christian Vits

     FRANKFURT (MNI) - Despite some chatter in recent days suggesting the

European Central Bank Governing Council could change its guidance this week,

Thursday's policy meeting likely won't be as earth-shattering as expected by

some observers.

     Financial markets took notice of a sentence in the ECB's latest minutes,

published on Jan 11, stating that "the language pertaining to various dimensions

of the monetary policy stance and forward guidance could be revisited early in

the coming year".

     In reaction, some ECB watchers brought forward their calls on the timing of

the first interest rate hike and forecast a change of the central bank's

wording. But it might be premature to bet on any significant changes this week.

     "We haven't seen much fundamental moves on the inflation side, so we have

to wait for the new projections [on economic growth and inflation] in March," a

senior Eurosystem source told Market News last week. "Before this you will only

see minor adjustments -- if at all."

     Another argument against greater change this time may be the turmoil in

financial markets itself. ECB President Mario Draghi hates nothing more than

tension in the markets.

--MARKET REASSURANCE

     As a consequence, he might be more inclined to reassure over the current

stance of the Governing Council, rather than coming up with new insights on the

course of policy.

     What's more, the fundamental decisions concerning October bond buying are

not too far away. Any bigger alterations could be judged to be a deviation from

the ECB's steady-hand policy.

     In general, "the resistance to a change in the wording with respect to the

forward guidance has been remarkably strong from [ECB President Mario] Draghi

and [Vice President Vitor] Constancio," the source said.

     Still, discussions about the positioning of the ECB are ongoing. One of the

topics certainly is the debate over an end-date for the asset purchase program.

     But this discussion seems to have ended, in the sense that it is more or

less agreed to exit this unconventional measure in 2018. It doesn't matter too

much, in either timing or additional volume, whether it ends in September or

December.

     "There is a palpable shift of sentiment in the Council with respect to the

end of the asset purchase program," the source noted. "I would not expect too

much fighting about an extension to December."

     --APP EXIT

     With regard to the timing of a final exit from the APP he added: "I would

be pretty surprised, if we did not end the program at the end of the year -- at

the latest."

     On the other hand, there is no urgent need for the Council to give away any

option to react on surprising developments -- another argument to stay rather

calm this week.

     At the same time, the wording, the forward guidance, has to change, at the

latest when the Council communicates an end of the bond buys, most likely in

June, when another set of fresh projections on economic growth and inflation are

published.

     "When the asset purchases end, you will have to tie the interest outlook to

something else," another Eurosystem source told Market News.

     "Otherwise, you only have the formulation 'well beyond' the end of the bond

buys," he added. "One has to go a step further, saying, that we will tie the

interest rate outlook to the speed how fast inflation rates move to 2 percent."

--EURO STRENGTH

     Instead, the hottest topic might be the recent appreciation of the euro

against the dollar. The single currency has gained almost 5% against the

greenback in the past three months, which could trigger questions in the

follow-up press conference after the meeting.

     The doves on the ECB Governing Council may use the euro's jump against the

dollar to argue for caution over any change in language and even the fundamental

bias towards a normalisation of monetary policy.

     On the other hand, MNI's sources said monetary officials are rather relaxed

about the euro exchange rate, with no need to react to currency movements.

     Given this background, there still seems much to be discussed -- but likely

not to be communicated this week.

--MNI Frankfurt Bureau; +49 69 97782671; email: christian.vits@marketnews.com