ECB: To Twitch Or Not To Twitch?

The minutes of the January meeting illustrate the ECB's increasing concerns. However, today's encouraging confidence indicators should prevent the central bank from twitching at the March meeting.

Source: ECB

The minutes of the January European central bank meeting show that the ECB has become more concerned about the economic outlook but needs more time, like everybody these days, to assess if the downswing is temporary or something more permanent.

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

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.

Moving from January to March

As the January meeting was only an intermediate meeting between two staff projections, all eyes are now on the March meeting, in two weeks. 

The Eurozone still wobbles between solid domestic demand and increased external risks, and it remains unclear, in which direction the pendulum will eventually swing

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