ECB: Unreasonable to expect taking fresh monetary policy initiatives - BBH

Research Team at BBH, suggests that this week's events in the Eurozone will be of interest to investors but are unlikely to change the investment climate but a modest improvement in economic data will provide the backdrop for the ECB meeting. 

Key Quotes

“While the headline CPI is likely to show deflationary forces remains, they probably slackened a little.  Money supply and lending likely increased, as did retail sales (after March's decline), while unemployment may have slipped to 10.1% from 10.2%. 

What has gone unnoticed by many observers, and appears to have gone unremarked by ECB President Draghi, is that the Eurozone growth experienced last year and projected for 2016-2017  is near what economists regard as trend or the long-run average.  And perhaps a little better than trend growth, which suggests the output gap may be reduced.   

Ironically, the fact that growth is near trend and stable could be a powerful argument for Draghi's critics, but the problem is that to put much emphasis on this would require a broader mandate than the ECB is given.  Many if not most of the critics of eurozone money supply are loath to expand the ECB's mandate.  The ECB's mandate is price stability.  It appears it will take stronger growth for longer for the ECB to reach its single-mandate objective. 

It is unreasonable to expect the ECB to take fresh monetary policy initiatives.  Not because there is a secret Shanghai Agreement, but because the already announced measures have not been fully implemented.  Even after they are implemented, the impact must be assessed.  We reckon this will take the ECB most of the rest of the year.   

The ECB's staff forecasts will be updated.  With the help of higher oil prices, the staff may tweak higher its inflation forecasts.  The risk is on the upside for growth forecasts.  The market may also look for more details of the corporate bond purchases and the new TLTROs that expected to be launched in June.”