ECB: Likely on hold as it reassesses the inflation outlook – Lloyds Bank

According to the research team at Lloyds bank, Euro area headline inflation climbed to 2% in February, which means that it is now above the ECB’s goal of “close to but below 2%” but despite that, it is likely that President Draghi will play down its significance, because the rises in recent months have been driven almost entirely by energy prices.

Key Quotes

“Underlying domestic inflationary pressures remain subdued, with the ‘core’ rate excluding food and energy remaining below 1%.”

“The ECB has already announced that from next month it will scale back its monthly purchases to €60bn a month until year end, from €80bn previously. We expect this to go ahead but for policy to otherwise be left unchanged at meeting. President Draghi’s tone at the post meeting press conference will likely remain cautious with risks to growth seen remaining on the downside, partly relating to political uncertainties including upcoming French elections. Any removal of stimulus beyond the previously planned reduction would therefore be premature. Providing the euro area economic environment continues to improve we expect the ECB to signal a gradual ‘tapering’ of its asset purchases next year in either September or October and for policy rates to rise thereafter.”