ECB should leave rates and FX markets relatively stable - TDS

Research Team at TDS notes that the ECB makes its first policy statement since December’s “trim” announcement and while this meeting should be a relative snoozer, the rise in euro area—and particularly German—inflation in December will put pressure on President Draghi to ensure the ECB’s 2017 policy commitment remains intact.

Key Quotes

“Hawks are already concerned that German inflation, at 1.7% y/y, is approaching the ECB’s implicit target, but we note that core inflation still remains far below target. We expect President Draghi to reinforce past statements that there are still no signs of a sustained upward trend in core inflation, and that the ECB cannot envisage a scenario in which it reduces stimulus in 2017 at a faster pace than already announced, keeping its asymmetric policy commitment unchanged. This should leave rates and FX markets relatively stable through both the statement and the press conference (though we flag overlap with a Trump press conference at 2:15GMT).”