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Failed Recovery Prompts Draghi To Turn Softer

ByDanske Markets
Published 03/05/2013, 06:14 AM
Updated 05/14/2017, 06:45 AM
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We expect the Governing Council to discuss rate cuts, and at the press conference we believe Mario Draghi is likely to open the door for a rate cut in the coming months.

However, we anticipate that euro area data will improve in the coming months, in which case the ECB is unlikely to actually deliver a rate cut.

If euro area data does not show signs of improvement outside Germany in the coming months, we expect the ECB to deliver a 25bp refi rate cut in April or May.

A refi rate cut is the preferred option; it would make it more attractive for banks to keep liquidity and should lower rates in the two-year segment.

Cutting the deposit rate to negative territory is also a possibility, but we think it would come with more costs and less benefits.

The ECB's staff projections are likely to remain mostly unchanged. The inflation outlook might be revised down slightly, which provides the ECB with further room for rate cuts.

In the Q&A, Draghi is likely to be asked about Italy. We expect him to confirm that the ECB remains ready to do 'whatever it takes' but that politicians must first make sure that the conditions for bond purchases under the OMT programme are fulfilled.

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