The ECB Meets Tomorrow, But No One Is Expecting Much
Many believe persistent low inflation will force the ECB to ease further this year, but only three of the 57 economists polled by Bloomberg expect such an announcement to come out of Thursday's meeting.
On Monday, Eurostat published its initial estimate of euro area-wide consumer price inflation in the month of March - up 0.5% from a year earlier, down from February's 0.7% year-over-year change and below consensus estimates for a smaller deceleration to 0.6% year over year.
However, many forecasters already flagged March as the likely bottom for the inflation rate. One frequently-cited explanation for the drop was the unusual timing of Easter in 2013. It was in March instead of April, which may have temporarily caused year-on-year comparisons to fall in March this year before potentially staging a rebound in April.
The ECB has been arguing that medium-term inflation expectations remain anchored, so the latest inflation reading may not be enough to spur the central bank into action.
"The ECB could easily have justified doing a lot more already," says Greg Fuzesi, an economist at JPMorgan Chase.
"That it has not done so, in our view, reflects the constraint it faces from a lack of tools it considers appropriate and impactful. Its hope is that the monetary policy transmission improves over time (especially with the AQR and stress tests) and that growth holds up, even as low inflation and a surprisingly strong currency are raising the pressure to act. Our forecast that the ECB stays on hold this week (and beyond) is therefore uncomfortable, and we note that the threshold for action remains very hard to gauge. Essentially, we are assuming that core inflation remains stable and that growth gradually picks up further and that this persuades the ECB to remain patient."
Stay tuned for full coverage of the ECB decision and press conference on Thursday morning.