Citibank : ECB Hinted To Review Its Policy In March 2016


The ECB hinted to review its policy in March. The ECB left all its monetary policy rates unchanged at yesterday’s meeting and did not announce any new unconventional monetary policy measure.

On inflation, President Draghi noted that the fall in oil prices since the cut-off date of the last Staff Projections has reached 40%, and that this implies that the expected path for 2016 inflation is significantly lower than previously expected.

Highlight on ECB Meeting:
The press statement clearly hinted that more stimulus may be forthcoming in March – with the key sentence
“it will be necessary to review and possibly reconsider our monetary policy stance at our next meeting”
Four key downside risks to the euro area outlook are:
(i) heightened risks from the slowdown in emerging market economies,
(ii) increased financial and commodity markets volatility,
(iii) higher geopolitical risks and
(iv) continued inflation undershooting.

Policy outlook:
Overall, the message from the press conference is in line with our view that additional ECB stimulus may be delivered in H1 2016.

While the wording “possibly reconsider” may still leave some room for no action in March, we reckon chances have increased that new measures may be announced as early as 10th March.

We still expect the ECB to announce a QE expansion/frontloading, another QE extension and a further deposit rate cut by June.

EUR outlook:
It may be EUR negative, but the magnitude of a move may be more limited than in Nov/Dec.
On technical analysis, EUR/USD may range trade between 1.0711-1.0991, with downside bias.
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