Today's decision of the European Central Bank together with a press conference as well as macroeconomic projections belongs to one of the events of this week. The European Central Bank has to deal with the decline in inflation and weak recovery in the economy.
Not so long ago, the institution responsible for monetary policy in the euro area was willing to end the asset purchase program and to announce that it would leave interest rates unchanged until the end of the summer. The European Central Bank recently changed its opinion according to unfavorable macroeconomic data, ongoing trade war and lower inflation expectations. Consequently, the communication on the interest rate decision includes the following: The Governing Council now expects the ECB's key interest rates to remain at its current level at least until the end of 2019, and in any case as long as it is necessary to ensure a further stable inflation approaching below, but close to 2% in the medium term.
Meanwhile, the interest rate market participants, seeing worse and worse outlook for the European economy together with cutting forecasts on GDP growth and looking at current inflation data, as well as near-record low levels of inflation expectations, assume that by July 2020 the ECB will cut interest rates by 10 bp. It seems that this is currently unlikely, but it shows how much dovish attitude from the ECB is expected by investors.
The most important points of Mario Draghi's speech may be the latest macroeconomic projections of ECB experts, where the latest expectations will be included, including inflation and GDP growth. The second most important issue may be the inflation. A small but steady increase in prices is the main task of the ECB. The key issue will be whether Mario Draghi will continue to convince the market that it is only a transitory period, or maybe he will change his mind. And finally, one more main thing, the latest round of cheap loans for banks - TLTRO. So far, we have not known any details of this program, and this meeting may be a good opportunity for that. The last increase in lending to households and enterprises is a plus for the ECB.
The key market worth paying attention to is the euro and currency pairs associated with it, such as EUR/USD. The decision of the European Central Bank will be announced at 13:45, and the press conference will take place at 14:30.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
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