ECB concerned about the economic outlook - ING

Carsten Brzeski, chief economist at ING, points out that the recently released ECB minutes of the January European central bank meeting show that the ECB has become more concerned about the economic outlook but needs more time.

Key Quotes

“Regarding the most pressing issues for the ECB, i.e. the macro assessment, new TLTROs and the future path of the monetary policy, the minutes revealed some interesting details:

• The ECB is struggling to see if the current downswing is transitory or something a bit more permanent and will wait until the March meeting, when the new ECB staff projections will be available, hoping for more insights.
• Regarding the option of new TLTROs, the ECB felt that 'some consideration should be given to the outlook for liquidity conditions in the banking sector, as the redemptions of outstanding targeted longer-term refinancing operations were approaching, which might give rise to “cliff effects”'. The sentence 'While any decisions in this respect shouldn't be taken too hastily, the technical analyses required to prepare policy options for future liquidity operations needed to proceed swiftly' shows that the process to come up with some options has started.”

“With today’s (temporary) relief from sentiment indicators, the situation in the Eurozone does not look severe enough (yet) for the ECB to announce any quick policy changes at the March meeting.”

“Instead, we expect the ECB to announce that the Governing Council asked the relevant committees to look into options on how to deal with liquidity bottlenecks and bank profitability and present some action at the April meeting.”

“Even though recent comments from senior ECB officials gave rise to speculations about some changes at the March meeting, we think that the ECB will remain on high alert but not twitch just yet.”