March 1, 2018 / 4:28 PM / 2 years ago

ECB to chart steady course in March meeting: sources

FRANKFURT (Reuters) - European Central Bank policymakers are likely to discuss a small tweak in their communication stance at their March 8 meeting but no major policy shift is expected, three sources with direct knowledge of the discussion said.

FILE PHOTO: The European Central Bank (ECB) headquarters building is seen in Frankfurt, Germany July 20, 2017. REUTERS/Ralph Orlowski/Files

Concerned about recent market turbulence, the strong euro and a dip in both headline and underlying inflation, officials prefer waiting, perhaps as late as the summer, before starting to signal the end of asset buys, the sources said.

Having bought more than 2 trillion euros worth of bonds to prop up inflation, the ECB is expected to shut its bond purchase scheme by the end of the year, satisfied that robust economic growth will lift consumer prices, even if only slowly.

But the sources said the bank wants plenty of evidence that inflation will rise, fearing damage to its credibility if moved too early and had to reverse course.

The most ambitious change to be discussed at the meeting could be a proposal to give up the bank’s so-called easing bias, a stipulation that the ECB could increase asset buys if necessary.

While this would be relatively uncontroversial as few if any expect bigger purchases, policymakers rejected such a suggestion in January and the sources said fundamentals did not change enough since then to make such a tweak certain.


But a broader decision about revamping the bank’s guidance, already flagged for “early” 2018, will not come this month, with some policymakers arguing that such a shift could wait until April or June, the sources said.

“There is general concern about market volatility and inflation has been heading down so it’s clearly not the right time,” one of the sources said. “The easing bias could easily go but even that might have to wait.”

“There is fear about signaling too much and increasing market volatility,” the source added.

The ECB declined to comment.

The new guidance, which could cut the emphasis on new asset buys and put the focus on a broader set of instruments to lift inflation, is seen as a precursor to a decision to stop bond purchases, now running at 30 billion euros a month.

ECB President Mario Draghi earlier this week said he was confident that inflation would rise because the factors holding it back were temporary, but there were no signs of a rise in underlying inflation.

Inflation dipped to 1.2 percent last month, its lowest in 14 months, far below the ECB’s elusive target of almost 2 percent.

Another item on the ECB’s agenda for next Thursday will be new macroeconomic projections, but the sources said they are unlikely to offer many surprises as growth and inflation are broadly on the same path as before.

While a strong euro could hold back inflation, growth may be stronger than earlier thought, and these factors could cancel each other out. A benign wage deal in Germany is also seen as a positive as it reduces the downside risk in wages.

The sources said that political risk, particularly Sunday’s parliamentary election in Italy, were also a concern but did not feature too high on policymakers’ list of worries as the vote was more likely to produce a pro-European government, even if the outcome proved messy and coalition talks lengthy.

Additional reporting by Frank Siebelt; Editing by Gareth Jones

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