ECB Preview: 12 Major Banks expectations from April meeting

Today, we have an all-important ECB meeting for the month of April, and as we get close to the decision timings, here are the expectations as forecasted by the economists and researchers of 12 major banks for today’s meet.

Most of the researchers and economists are forecasting, that the ECB will likely remain on hold this month, after the dovish turn in March. In addition, they are expecting that the ECB will likely further push out its forward guidance on the period of unchanged policy rates and ongoing reinvestments, while Draghi is likely to strike an overall cautious tone.

Deutsche Bank

“For the ECB it’s a chance for them to correct their messaging after disappointment expressed by the market after their last outing. Expect there to be plenty of questions directed at Draghi both on the TLTRO details and also the impact of negative rates.”

“News flow on tiering has picked up in recent days including an acknowledgement in the latest meeting minutes. So markets will particularly be looking for clues as to where the internal debate on persistent low rates on bank margins, profitability and the transition mechanism now lies.”

Rabobank

According to analysts at Rabobank, the ECB has already given away more policy changes than they had expected in March, so they are not expecting April to add no new policy decisions.

“We believe that risks to the ECB’s policy remain skewed towards additional easing.”

“Last week, discussions about a potential tiered deposit rate system suddenly appeared, but we don’t expect this to be implemented in the near future.”

“Instead, it could make a relatively more generous TLTRO-III pricing the path of the least resistance if there is division in the Council.”

ABN AMRO

“Our base case is that the ECB will further push out its forward guidance on the period of unchanged policy rates and ongoing reinvestments. The modest trajectory for economic growth will not be sufficient for underlying inflationary pressures to build.”

“We think that ECB forecasts for growth and inflation remain too high despite recent downgrades. Our base case is that ECB policy interest rates will remain on hold through to the end of 2020 and that reinvestments will continue to the end of 2021. However, the risks are to the downside and the probability is rising that the ECB will need to step up stimulus and restart QE.”

“Market pricing on the timing of the first ECB rate hike has converged towards our base case over recent weeks.”

Royal Bank of Canada

In the view of the analysts at the Royal Bank of Canada (RBC), the European Central Bank (ECB) will likely remain data dependent while leaving the interest rates lower through the end of this year.

“Having changed its forward guidance at its last meeting, the ECB now expects interest rates to remain at their current level 'through the end of 2019' compared to 'through the summer of 2019' previously and announced a fresh round of bank liquidity measures; we expect the ECB to remain on hold this month.”

“Details of the new TLTROs, including the exact rate attached to them and the incentive structure to encourage bank lending, are unlikely to be announced until the June meeting. For the time being, the ECB will be watching the incoming data as it attempts to decipher how much longer the euro area growth slowdown is likely to last and whether it worsens.”

“Key for the ECB in coming months in that regard will be what happens to domestic demand, in particular, consumption and investment, and whether the weaker external environment that it now taken as a given spills over into consumer sentiment and business investment decisions.”

BBVA

According to the Research Department at BBVA, the ECB is not expected to present details on the new TLTRO. They expect the first rate hike in June 2020. 

“The ECB is expected to leave monetary policy unchanged, after the dovish turn in March (announcement of the new round of long term liquidity and the delay in rate hike). The ECB is not expected to reveal any more details on TLTRO-III, more likely in June. The central bank could give some hints about potential measures to mitigate the side-effects of negative rates on bank profitability (the ECB is looking at ways of “tiering” the negative interest rate that banks pay on cash).”

“Regarding our baseline scenario for euro rates, we have delayed our expectations of the first (depo and refi) rate hikes six months, on downward revisions of Eurozone macro projections and recent dovish tone by ECB members (following the already explicit guidance on rates in March “interest rates to remain at their present levels at least through the end of 2019”).”

“We now expect first depo rate hike (+10bps) in Jun20 and first refi rate hike (+25bps) in Dec20.”

TD Securities

According to analysts at TD Securities, this week's meeting comes sandwiched between two important ECB meetings, and as such, is unlikely to provide much in terms of steps forward.

“After announcing new TLTROs in March, we expect the ECB to defer announcing details until June. The Governing Council likely wants time to observe any potential rebound in euro area growth before committing to the details ahead of the September launch. They have time on their side, and on that front, we remain cautiously optimistic.”

“Rumours about deposit rate tiering are premature in our view, and will not be addressed at this meeting, though President Draghi may have to answer questions about it during the press conference. He is likely to discount any need at this point.”

“Macroeconomic data has started to turn a corner since March, with data surprises on hard data and surveys now in positive territory, while inflation surprises continue to linger around zero.”

“The ECB will not provide updated forecasts but recent data is likely to colour their tone.”

Societe Generale

Analysts at Societe Generale offer a brief preview of what to expect from this Wednesday’s European Central Bank (ECB) monetary policy meeting.

“Should be a low-key event after the central bank pushed back the first rate increase to 2020 and announced plans to offer new TLTROs, starting after the summer.”

“Expectations of an ultra-dovish outlook are fully entrenched following the collapse in 10y EGB yields to negative territory.” 

Nordea Markets

Nordea Markets analysis team are expecting that the ECB’s April meeting will continue to analyse the future economic outlook and what that implies for the details of future policy actions.

“While no concrete decisions will be announced, the discussion is expected to be active.”

“We do not expect concrete policy actions to take place in April as the discussion will focus probably on the details of the TLTRO III and Draghi will also face questions about the possibility of a tiered reserve system.”

“If data continues to be very weak we expect the next round of easing measures to take place in June.”

“From the ECB’s perspective, especially worrying could be if the recent decline in the market-based inflation expectations turns out to be persistent and becomes broadly based.”

“It will be hard for the ECB to surprise the EUR negatively.”

Danske Bank

According to analysts at Danske Bank, after the ECB confirmed its 'low-for-longer' narrative at last week's Watchers conference, they are expecting Draghi to repeat his 'delayed, not derailed' inflation message, thereby no new policy signals from the ECB.

“We expect Draghi to strike an overall cautious tone and the ECB to keep its downside risks assessment on growth.”

“The economic indicators are yet to show a convincing pickup but positively some stabilisation in indicators (except in the German manufacturing sector and core inflation) has been observed, which we expect Draghi to acknowledge.”

“We do not expect TLTRO3 modalities to be announced next week (not until June). We expect questions on a tiering-system but no additional colour to the discussion compared to last week comments from chief economist Peter Praet.”

ING

“Looking at this week’s meeting, the minutes as well as recent comments by ECB president Mario Draghi and Chief Economist Peter Praet signal that the ECB is investigating whether and how the ECB should provide some relief to the banking sector. Also, don’t forget that the ECB still has not presented what the so-called built-in incentives in the next TLTROs could be. In our view, there is no rush to present any details already next week. Instead, we expect the ECB to wait until the June meeting.”

“All in all, we do not expect the ECB to announce further details of the built-in incentives for the next TLTROs or of any tiering system already this week. The ECB will continue with the balancing act between demonstrating that it is not running out of ammunition while still keeping some cards to its chest.”

“The most likely next step is still the announcement of the detailed conditions for the third batch of TLTROs (at the June meeting). Introducing a tiering system will be investigated but probably only announced in case the economy has not started to rebound by June.”

Westpac

“April's meeting follows a significant dovish shift in March. While before, the ECB held steady in their confidence that the growth slowdown would be temporary, in March they have factored in weakness persisting through H1 2019.”

“All up, this saw large downward revisions in the economic projections, the extension of interest rate policy forward guidance to rates expected to be on hold at least through the end of 2019, and the announcement of a new Targeted Long-Term Refinancing Operations (TLTRO) package in response to the upcoming maturities.”

“Full detail of TLTRO-III is to be announced. At first glance TLTRO-III appears less favourable than its predecessor, but the ECB have indicated that there will be incentives (as did TLTRO-II). We expect an announcement in June with April's discussion providing valuable clues. Of secondary importance will be discussion on side effects of negative interest rates and the potential for a tiered deposit rate.”

ANZ

“The ECB is likely to become more dovish. Since they last met, global central banks incrementally headed in that direction, while the data pulse in Europe has been relatively weak. How they balance some improved confidence numbers and a solid service sector against current manufacturing weakness will be notable.”