ECB meeting accounts Preview: Three pillars of stability in the sea of ambiguity

• The ECB will remain ambiguity leaving the back door for possible stimulus extension always half open.
• The ECB dropped the easing bias from its communication in March indicating the end of stimulus is near.
• ECB members hinted that the deposit rate increase is the closest possible move.

ECB meeting minutes that the ECB bureaucracy stubbornly calls ECB meeting accounts are due on Thursday, April 12 with markets eagerly awaiting the signs of breaking the long-term silence and secrecy. Given the language of the lengthy document that is written in this kind of very formal Euro-speak, it is challenging to dig for some clues really, but there are things that we already know and can be sure about even with ECB communication mastering the ambiguity.

First, it is the everlasting readiness of the ECB to provide the monetary stimulus needed for the divergent spillover of the better-than-expected growth throughout the individual Eurozone member states. The ECB has offered multiple signals of content with the growth rate of the Eurozone economy of late, and it has numerous times upgraded its short-term macroeconomic forecast for the region. The central bankers gathering in Frankfurt though opts to remain open to all choices as they realize how fragile the economic prosperity in a very diversified region sharing the common European currency is. 

Second, the ECB dropped its easing bias in its communication in March. Until March the ECB kept saying that it is ready to increase the level of bond purchases in the Eurozone regarding both duration and/or size of the program, but it removed such statement from its communication on Mach 8 indicating that the extraordinary stimulus in the region could come to an end soon.

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At the press conference following the March ECB Governing Council meeting, Mario Draghi justified the move by a robust economic recovery in the region saying that "Incoming information confirms the strong and broad-based growth momentum in the euro area economy, which is projected to expand in the near-term at a somewhat faster pace than previously expected."

The third thing we can be sure about is that the strength of Euro is not an issue in the ECB. While during the fourth quarter of 2017 the continuous and sharp rise of the exchange of Euro was a reason for the policymakers to intervene verbally, the 2018 highs recorded this January left ECB President Draghi silent during the press conference, actually refraining from any currency comments. Draghi actually reminded the world of the Washington accord among G20 officials that bans competitive devaluations among world’s top economies just one day after the US Treasury Secretary openly said in Davos that weak US Dollar is the official policy prompting the US President Trump denying his stance next day.

For the currency market, the ECB verbal silence actually does not matter much.  Markets do not necessarily need an official statement to think that the combination of strong growth and signs of inflation re-appearing elsewhere in the global economy, like in the US for example, will eventually lead the asset purchasing to an end. And markets have plenty of indications that before the main refinancing rate moves higher, it is the deposit rate that will go up first.

ECB Governing Council member Ewald Nowotny said the Bank could lift deposit rate to -0.2% from -0.4% to start the process of rate hikes. Nowotny also said the ECB would end bond buys this year while it is too early to say when rate hikes will start.