Change Of Tone On Economy And Pausing To Be Undertaken By ECB

The slight changes in tone when it comes to their assessment of economic activity is expected to dominate the meeting of the European Central Bank meeting that is scheduled to be held this week. There appears to be little appetite to rock the boat with the French presidential run-off scheduled for May 7.

Policy rates are expected “to remain at present or lower levels for an extended period of time and well past the horizon of the net asset purchases” and “growth risks are tilted to the downside” was more or less the stated official language of the ECB until now. But now it is expected that the tone may change a bit to the upside even though no change is expected to this language.

The ECB is getting more optimistic in their economic assessment – is a growing sense.

“The latest incoming data have shifted the balance of risks for growth towards neutral territory in my view,” Governing Council member Benoit Coeure said at an event in Brussels March 31. “But at the same time, measure of underlying inflation in the euro area remain subdued and our projected path of inflation still remains highly conditional on our policy stance.”

According to a survey showing businesses increased activity at the fastest rate for six years as new orders stayed robust, the euro zone economy showed strong broad-based growth. Climbing to 56.7 from March’s 56.4, its highest since April 2011 was the IHS Markit’s Flash Composite Purchasing Managers’ Index, seen as a good guide to growth. A reading above 50 indicates growth.

The ECB is expected to leave monetary policy unchanged until the June meeting when new projections will be presented by the majority of economist even while this week’s meeting might see slight changes in tone.

“With continued strong data in the euro area, we believe an increasing number of governors will soon come round to this view (balance of risks broadly balanced) likely leading to a change in the communication at the June meeting when new Eurosystem staff forecasts are presented,” writes Anatoli Annenkov, ECB watcher at Societe Generale Group, in a note. “For now, however, the political uncertainties are likely to dominate.”

The focus is on France. “Even though we still expect the ECB to give its first signs of tapering at the June or July meeting, it looks extremely unlikely that the ECB wants to steer market expectations in between the first and second rounds of the French presidential elections,” Carsten Brzeski, chief economist Germany and Austria at ING Diba, said in a note

(Adapted from CNBC)

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Categories: Economy & Finance, Geopolitics, Uncategorized

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