In an economic update – Draghi Steers ECB towards Early Monetary Policy Easing – AB said ECB President Mario Draghi indicated that the central bank will “review and reconsider” its monetary policy stance at its next meeting in March.
Mr Draghi, in a press conference following the ECB Governing Council meeting last week, said the eurozone’s situation had deteriorated “materially” since December last year, and the decision to review policy early was “unanimous”.
“Draghi’s forceful message [last] week suggests he is confident he can deliver in March – and he will be only too aware of the damage another false steer would do to his credibility and authority,” AB said.
According to AB, headline inflation is set to come under downward pressure, and with the Purchasing Managers Index (PMI) likely to fall this month, Mr Draghi is “gathering the evidence” needed for additional easing.
If the ECB does move to ease in March, another cut in the deposit rate is likely, AB said.
“Further extension of the asset purchase program beyond March 2017 is also possible and probably inevitable at some stage,” the company said.
“But we suspect the market would regard this as disappointing, if unaccompanied by other measures.”
In the effort to avoid market disappointment as seen in December, AB argued that the ECB will look to expand the monthly pace of its asset purchases.
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