ECB: No change, no details but could offer hints regarding bank profitability - BBVA

On Wednesday, the European Central Bank will have its monetary policy meeting. According to the Research Department at BBVA, the ECB is not expected to present details on the new TLTRO. They expect the first rate hike in June 2020. 

Key Quotes: 

“The ECB is expected to leave monetary policy unchanged, after the dovish turn in March (announcement of the new round of long term liquidity and the delay in rate hike). The ECB is not expected to reveal any more details on TLTRO-III next week, more likely in June. The central bank could give some hints about potential measures to mitigate the side-effects of negative rates on bank profitability (the ECB is looking at ways of “tiering” the negative interest rate that banks pay on cash).”

“Regarding our baseline scenario for euro rates, we have delayed our expectations of the first (depo and refi) rate hikes six months, on downward revisions of Eurozone macro projections and recent dovish tone by ECB members (following the already explicit guidance on rates in March “interest rates to remain at their present levels at least through the end of 2019”).”

“We now expect first depo rate hike (+10bps) in Jun20 and first refi rate hike (+25bps) in Dec20.”

“Regarding the Eurozone macroeconomic scenario, over the last month economic indicators point to weak momentum in the Eurozone to persist so far this year, but it seems to have bottomed out.”

“Core inflation declined in March to 1% YoY driven by calendar effects. Beyond this volatility in services prices, core inflation is expected to increase only gradually in coming months.”