ECB preview: Cautious tone could be reinforced  - BBVA

The European Central Bank will have its monetary policy meeting on Thursday. According to the Research Department at BBVA, the central bank will retain its dovish tone. They see no significant changes to its forecasts. 

Key Quotes: 

“At June meeting, the ECB is expected to retain its dovish tone and its readiness to act if needed. No changes are expected on forward guidance yet. Moreover, the central will unveil the final conditions of the upcoming TLTROIII. The cautious tone could be reinforced on the back of growing risks due to global concerns after the escalation of trade war tensions and Brexit amid the Eurozone slowdown and the low inflation expectations. Along the same lines the minutes of the April meetings confirmed the dovish tone struck in the last few months as the ECB acknowledged the extension of the slower growth momentum but it also considered that recent data has improved, in line with their baseline scenario.”

“The ECB will maintain that risks for growth remain tilted to the downside. We expect the central bank to unveil the TLRO III final conditions, possibly setting a negative spread of at least -20bp on the average MRO for those banks that fulfill the lending benchmark in order to encourage the take-up of liquidity. The final take-up will very much depend on the final cost.”

“Despite Eurozone growth gained momentum in 1Q19, it is trending to more moderate pace driven the protracted weakness of the industrial sector related to structural factors and slowing global demand. The ECB is likely to maintain its forecasts broadly unchanged for 2019 (GDP: 1.1%; HICP: 1.2%), but heightening trade war and increasing political uncertainty could lead a slight downward revision to its outlook for the forecast horizon (March staff forecasts GDP: 1.6% in 2020 and 1.5% in 2021; HICP: 1.5% in 2020 and 1.5% in 2021).”