MNI ECB WATCH: Rates On Hold, Eyes On Projections, Language

The European Central Bank is set to hold its key deposit rate at 2% on Thursday, extending the ‘good place narrative’ as it presents a new set of projections that are unlikely to depart significantly from the September version. (ECB To Hold Again, Eyes On Language Changes).

With rates likely unchanged, ECB watchers will be eyeing any evolution in communication, with a possible tweak to the statement language to reflect some governors need to stress the meeting-by-meeting message, highlighting the symmetric nature of the current target, explicitly ruling out a de facto return to the ‘below but close to 2%’ inflation target.

ECB President Christine Lagarde is likely to reiterate that the ECB has no urgency to move interest rates in either direction, although she will likely remind of the need for the Governing Council to remain flexible and be ready to react quickly to events.

Any further evolution to the perception of risks both for growth and inflation will be closely followed by markets for an indication if some sort of easing bias persists or if policymakers see similar a chance for the next move to be either a cut or a hike. Early commentary of of Frankfurt from the President down suggests a more upbeat message on the economy.

FIRST 2028 PROJECTIONS

The December projection round will see 2028 outlooks published for the first time and they could be influenced by the shift of the EU’s new Emissions Trading System 2 (ETS2) that -- subject to clearance through the European Parliament -- has been delayed for a year. While it is not expected to move the needle for an immediate movement, the number could be important to frame the debate for future meetings.

The ongoing China threat is another factor that will likely be present in the Governing Council debate, with an increasing number of policymakers worried about the negative impact on the Eurozone economy -- both growth and prices. (see MNI INTERVIEW: Germany Needs Solid China Strategy - Wambach )

As at the beginning of the trade tensions with Washington, Eurosystem policymakers were worried about a diversion of goods from China into the EU, although recent evidence shows the competition the spread into third country markets where European exporters sell their products.