Upcoming ECB meeting: what to expect?

The most important financial event in the euro area this week is the ECB’s meeting on Thursday. Last month the central bank cut its benchmark rate to 0.25% as it expressed concerns with low inflation. European inflation data released last week showed that consumer price index rose in November from 0.7% to 0.9%. This may weaken the case for further easing action on the ECB’s part. However, producer price index contracted by 0.5% in October.

Analysts at Citi claim that the prospect for more ECB easing is now well-established EUR-driver which should cap any gains of the single currency. In their view, the central bank could still surprise on the dovish side this week by providing extended forward guidance with more details about the duration of the extended period of low or lower interest rate. Citi believes that Draghi could signal that the likelihood of refi and deposit rate cuts and next year or another LTRO has increased.

Natixis, on the contrary, points out that last week euro feebly reacted to the ECB officials’ comments about further monetary policy easing. The specialists warn that the market could be disappointed this week if the ECB announces no new measures to its monetary policy. “In the lead-up to the ECB meeting, the EUR/USD could inch higher to $1.3680,” Natixis projects.

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