Published: Wed, 04 Feb 2009 16:15:04 +0100

EU Preview: ECB Press Conference Likely to Hint at Cut in March

While ING Wholesale Banking senior economist Carsten Brzeski expects the ECB to decide to keep its refi rate unchanged, he is looking for clear hints that the central bank will resume its rate cutting cycle in March.

However, such hints would likely not come during the introductory statement, but rather during the question and answer segment of the conference, when Trichet will try to give a clear indication of what the ECB will do in the upcoming month.

Brzeski is also hoping for some indication of whether the ECB could go even lower, possibly all the way to 1%. "(So far), the ECB has not been willing to go below 1%," the economist noted. "Some even argue that they are not really willing to [go] below 1.5%."

However, while Trichet could mention a possible zero rate policy in the euro zone, or even another, more unconventional policy measure, Brzeski is looking for the ECB president to confirm the line that has been used leading up to the meeting on Thursday.

"Namely, that the ECB is not really willing to go to a zero interest policy and that the ECB is not really willing to conduct any type of quantitative easing," Brzeski said.

TD Securities global strategist Stephen Koukoulas is also looking for some definitive signals of further cuts down the road in 2009.

"I wouldn't be very surprised if he used words to the effect that policy is clearly accommodative, [but] the risks are still skewed to lower growth and lower inflation," Koukoulas said.

Noting that the ECB "never pre-commits", the strategist also said Trichet would likely stress that monetary policy easing comes with a lag effect and that patience is required.

However, Koukoulas added that Trichet would also reassure listeners that the ECB is alert to the risks that are unfolding and if, in the coming months, there is confirmation that activity and inflation pressures are weaker, "then March does become an opportunity to make policy even more accommodative."

By Todd Wailoo, twailoo@economicnews.ca, edited by Sarah Sussman, ssussman@economicnews.ca

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