ECB remains on high alert – ING

Carsten Brzeski, chief economist at ING, explains that the content of the ECB’s introductory statement and the ECB’s assessment of growth and inflation outlook had remained basically unchanged from the March meeting, as the bank remains on high alert.

Key Quotes

“The main interest was on whether the ECB would give away any new details of the new series of longer-term refinancing operations (TLTRO3), starting in September, and whether the ECB would elaborate more on recent hints that it could provide some relief to the banking sector. Here, the ECB seems to need more time. In fact, the ECB said that the precise terms will be communicated at “one of our forthcoming” meetings. A slight variation of the “in due course” from the March meeting.”

“As regards the timing of TLTRO details, the press conference left some room for interpretation. While the introductory statement read “upcoming meetings”, Draghi put somewhat more emphasis on the fact that the June meeting would have the next round of staff projections. In any way, there are only three more ECB meetings between now and the start of the new TLTROs.”

“Judging from today’s comments, the TLTRO details could in our view very well be presented at the June meeting but mitigating measures, like eg a tiering system, will only be presented as a last resort in case the economy weakens further.”

“Looking ahead, in our view, the open questions regarding the TLTRO details are how the ECB will actually shape the so-called built-in incentives, the lending volume and early repayment options. Obviously, a lot will depend on the state of the Eurozone economy over the next months, in order to determine how ample or sparse the TLRTOs should be.”

“All in all, today’s meeting showed that the ECB is still very hesitant to decide on anything like a tiering system for the deposit facility.”