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ECB policy: Stop Worrying and Love the Soft Patch

Summary:
Weaker economic momentum and low inflation in the euro area is unlikely to affect ECB monetary stance.We see little incentive for the ECB to change its broad assessment of the economic situation at the 26 April meeting. The normalisation of the monetary stance will continue to be dictated by the ECB’s guiding principles of confidence, patience, persistence, prudence, and gradualism.Talk is cheap, and Mario Draghi could still put more emphasis on those contingencies that would force the ECB to respond (including trade tensions and a stronger EUR) by delaying the first rate hikes. A more explicit dovish shift would see the Governing Council endorse market pricing of a delayed lift-off.Either way, the ECB will closely monitor the upcoming data, with a special focus on core inflation and PMI

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Weaker economic momentum and low inflation in the euro area is unlikely to affect ECB monetary stance.

ECB policy: Stop Worrying and Love the Soft Patch

We see little incentive for the ECB to change its broad assessment of the economic situation at the 26 April meeting. The normalisation of the monetary stance will continue to be dictated by the ECB’s guiding principles of confidence, patience, persistence, prudence, and gradualism.

Talk is cheap, and Mario Draghi could still put more emphasis on those contingencies that would force the ECB to respond (including trade tensions and a stronger EUR) by delaying the first rate hikes. A more explicit dovish shift would see the Governing Council endorse market pricing of a delayed lift-off.

Either way, the ECB will closely monitor the upcoming data, with a special focus on core inflation and PMI surveys ahead of the more important 14 June meeting. Despite higher oil prices, risks remain tilted toward modest downward revisions to ECB staff projections.

Frederik Ducrozet
Mr. Frederik Ducrozet is a Senior Econoist at Banque Pictet & Cie SA, Research Division. Prior to this, he served as Senior Eurozone Economist at Credit Agricole Corporate and Investment Bank, Research Division from June 2006 till September 2015. He joined Crédit Agricole SA in 2005. Mr. Ducrozet contributed to the various publications of the research department, with a special focus on macroeconomic developments in Eurozone countries, including on the outlook for fiscal policy and the ECB’s monetary policy. Do not hesitate to contact Pictet for an investment proposal. Please contact Zurich Office, the Geneva Office or one of 26 other offices world-wide.

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