ECB will not pass by the worsening economic view at its meeting today

Today at 14:45 is expected the high level meeting of ECB and shortly after that at 15:30 is the press conference of the chairman Mario Draghi. At this meeting it couldn’t be skipped the topic of the worsening economic data in Europe.

The opportunity to point at the trade negotiations US-China and Brexit as reasons will not be missed too. This will probably lead the markets and in the beginning of the European session, when we can expect precaution at risk assets and slight sell offs like the ones after the speech of Draghi.

The bank sector will be interesting, where yesterday we saw some increase, after Bloomberg announced that the central bank is discussing the implementation of a new wave of ultra-cheap bank loans (TLTROs).

A less likely possibility is even hint for rising the interest rate for the deposits of ECB – the fee that it gives to the banks to hold cash - that could help them about the expenses.

“After significant decrease in its short term forecasts, ECB will probably leave unfavorable the forecasts for the mid-term perspective (2021) ” said Florian Hense, an economist at Berenberg.

“ECB could announce this week or in April that it will suggest a new round of longer term financing for the banks” he added.

The economy of the Eurozone continue its lowest growth pace in the last four years which was confirmed with the last data from January. Some economists though think that the current weakness in the Eurozone is only temporary and the economy will speed up again this year.

The factors that are staying behind this argumentation include the not so distant slowing in the German economy, that according to them to a great extent is due to the automobile sector. There is a perspective for an agreement between China and U.S. in their continuous trade conflict that could have a positive impact worldwide.

Of course on the table is still the negative scenario where everything fails and exactly the two biggest economies in the world don’t reach a final agreement (less likely) and at the end of March despite all UK to leave the EU without a deal.

So for now even the most aggressive strung and supporting the policy of tightening the monetary policy choose the approach to “wait and see”.

ECB finished its mass program for buying back bonds at the end of last year and still has to begin to rise the interest rate at the end of the summer. The debate whether there’s in fact a point in rising the interests for its deposits has already started. Some consider that this could be the moment when the actual benefits of the negative deposit rate (currently it’s -0.4%) could be compensated by the expenses that it provides to the banks.

The economists are divided on the matter whether we will get an announcement this week or just in April. Seems like the central bank of the Eurozone will show a bridge financing for the lenders in the region.

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