The ECB should reiterate that “Fiscal policy” is the answer!
The ECB will hold its press conference on January 21st.
Expectations are very low following December announcements (Pandemic Emergency Purchase Programme - PEPP size increase, new Targeted longer-term refinancing operations - TLTRO terms…), therefore do not expect too much from this event:
- Mrs. Lagarde will likely keep a very accommodative tone but will not discuss changing the ECB’s monetary policy tools.
- The recent fall of the Euro vs the US dollar lowers the pressure on the ECB to comment the exchange rate movements. Still, after last year’s appreciation of the Euro, they may reiterate that they will “continue to monitor developments in the exchange rate”.
- The ECB will most likely not comment on the political “noise” in the Netherlands, Germany or Italy (especially not in Italy).
- Additionally, the ECB will likely reaffirm that fiscal policy must be the main response to the current economic situation.
Overall, we do not expect any meaningful market reaction from this ECB meeting.
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