ECB preview: Sticking to the current forward guidance

The research team at HSBC expects no policy changes at the 27 April policy meeting and for the ECB to maintain its forward guidance on interest rates.

Key Quotes

“After a rollercoaster ride for market rate expectations recently, Mario Draghi and ECB chief economist Peter Praet seem to have quashed expectations of an earlier rate move. They reiterated the current forward guidance and warned against moving before a sustained upturn in wage growth and inflation pressure had been observed.”

“There will be no new forecasts published at the ECB meeting on 27 April. Since the March forecasts, the run of strong soft data in the eurozone has continued but the hard data have not matched this strength. For example, industrial production remained weak, particularly in France and Italy. Inflation dropped sharply in March (1.5% y-o-y from 2.0% in February) and core inflation is at the lowest levels in almost a year. So a reassessment of the current monetary policy stance does not seem warranted at this stage. We expect the ECB to stay on hold and reiterate the need to remain cautious, as stressed recently by Mario Draghi.”

“With no policy change expected, the market is likely to focus on forward guidance. Given the underlying inflation outlook, high political uncertainty and the recent comments from Mr Draghi and Mr Praet, we think that forward guidance won't be changed until Q4 2017 and that QE will continue until Q4 2018, with no rate hikes until then.”

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