The European Central Bank will announce its new monetary policy decisions on Thursday, March 9, 2017, at 1:45 p.m. and will also discuss its new economic projections during a press conference.
No change in key interest rates is expected. The marginal deposit rate, currently at -0.40%, will not be revised downward:
(1) the euro has depreciated by 2% against the dollar since early December;
(2) spreads with US rates will widen due to the Fed Fund rate hike expected next Wednesday;
(3) the possibility of repurchasing sovereign bonds with yields below -0.40% would not require a further downward revision of the rate.
In this sense, the main policy rate should also remain unchanged at 0.00%. Financial markets are pricing in a first rate hike of 25 basis points for March 2020.
The Asset Purchase Program ( APP) is also expected to remain at €80 billion until March and €60 billion for the rest of the year. This decision in December 2016 led to an overall extension of the asset purchase program. No announcement of « tapering » (exit or deceleration of the asset purchase program) is expected tomorrow: the outlook for economic and financial conditions remains uncertain due to political events (Brexit, French and Dutch elections), economic events (sustained acceleration of core inflation) and financial events (banking system profitability and acceleration in credit growth). During the press conference, questions may be raised about the pace of change in the asset purchase program, particularly regarding the reduction in the average maturity of purchased assets and changes in the distribution of purchases by country.
Finally, changes to the economic projections are expected. There could be a slight improvement in economic activity, even if the consensus scenario remains a growth rate of 1.7% in 2017. The weakness of the euro is supporting exports, while various leading indicators show an acceleration in activity in the eurozone since the beginning of the year. Conversely, an increase in the inflation forecast for this year is anticipated. The assumption made in December of an oil price of USD 49 per barrel, compared with USD 55 today, would imply a revision of more than 10% in the increase in the energy component, which accounts for nearly 10% of the harmonized index of consumer prices in the eurozone. Nevertheless, the ECB is likely to emphasize the lack of acceleration in core inflation, excluding energy and food, which currently stands at 0.9% year-on-year.
The announcement of key interest rates and APP terms and conditions will be available on Thursday, March 9, 2017, at 1:45 p.m. via a press release. The press conference will be held on the same day at 2:30 p.m.
