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EMU CommentDownbeat ECB - details on TLTROIII and mitigating tools coming up

  1. Growth momentum slowing - no details of TLTROIII and mitigating tools yet
  2. We expect focus on ECB easing to strengthen
Growth momentum slowing - no details of TLTROIII and mitigating tools yet
As highly expected todays policy meeting at the ECB was an “wait-and-see” meeting. Hence, the ECB kept all measures and forward guidance unchanged and did not make us wiser on the details of the TLTROIII-programme such as the pricing. Draghi said that the terms will be announced on one of the coming meetings (probably June or July), as the ECB want a thorough assessment of the effect on the bank transmission channel as well as further developments in the economy. Therefore the terms of the programme is likely released at the June policy meeting together with the updated macro-economic projections. This time around, Draghi maintained a downbeat tone, as data has confirmed a slower growth momentum into 2019, and risks to the outlook remained tilted to the downside. On the other hand, he did mention that some factors dampening growth was fading. On inflation, he restated that underlying inflation is expected to increase over the medium term, but did see a decline in headline inflation over the coming months. But as could expected, he did not see inflation expectations are deanchoring. Furthermore, the ECB will also consider whether negative deposit rates needs mitigating for possible negative side effects, if any, on bank intermediation. But according to Draghi the ECB has so far not discussed pros and cons of mitigating tools.
We expect focus on ECB easing to strengthen
We expect the ECB to keep the key ECB rates unchanged low over the coming three years as we expect the slow-down to continue over the next couple of years as described in our April Global macro forecast “Meagre shelter for the global economy”. Even though we expect the slow-down to be relatively mild, the focus next year will, in our view, rather be on possible easier monetary policy and the ECB’s rather scarce available tools. This said, in the short run we do see scope for some stabilisation in the economy possibly dampening the pressure for the ECB to act already this year unless some of the downside risks materialise.


Rasmus Gudum-Sessingø

Senior Economist


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