- The monetary policy decisions statement is released at 13:15 GMT
- President Lagarde et al could signal a policy shift in this communiqué
- The ECB staff projections could also hold the key to a rate cut soon
- The scheduled press conference takes place 30 minutes later
Complementing the detailed ECB preview, this report focuses on the first communication made by the European Central Bank after the completion of each rate setting meeting. A press statement called “Monetary policy decisions” is released at 13:15 GMT and it is the first point of reference for traders. This communiqué has grown in both length and importance since President Lagarde took over on November 1, 2019.
The communiqué layout is mostly predetermined
There is a preset layout for this communiqué with the necessary flexibility to shift the segments around in order to convey the intended message. The initial section contains a comment on the current economic conditions, mostly on inflation, with the first paragraph presenting any likely rate changes decided in the respective gathering. Barring a major upset, Thursday’s communiqué should report that the ECB decided to keep the three ECB rates unchanged.
ECB Staff projections are again the key
This first section of this communication release becomes even more important when the ECB staff projections are published in March, June, September and December of each year. Therefore, on Thursday this section will be closely scrutinized as the updated ECB staff projections could offer the ECB with sufficient justification for a rate cut soon, even in April. This has occurred in the past as on June 9, 2022 the staff projections were used to pre-announce the first rate hike after almost 11 years of stable rates, while the September 2023 projections essentially confirmed the end of the 14-month long rate hiking cycle.
The next paragraph usually signals the ECB’s rate intentions regarding its future gatherings. For example, the “Governing Council (GC) will take whatever action is needed” comment at the April 14, 2022 communiqué morphed into the “the GC decided to take further steps in normalising its monetary policy” sentence in the June 9, 2022 release, essentially signalling that a rate hike was coming up next.
Since hiking rates in September 2023, the communiqué includes the following key paragraph: “Based on its current assessment, the GC considers that the key ECB interest rates are at levels that, maintained for a sufficiently long duration, will make a substantial contribution to this goal. The GC’s future decisions will ensure that its policy rates will be set at sufficiently restrictive levels for as long as necessary.” Should President Lagarde et al decide to send an initial dovish signal to the market, this paragraph could be amended, especially the latter part about the time needed to maintain the current level of ECB rates.
The “Key ECB interest rates” segment is usually next
Provided that there are no changes at the various ECB asset purchases programmes, the details of the meeting’s rate decision follow. Should the ECB want to clearly state its strategy for the next meeting, comments like “the GC expects to raise the key ECB interest rates again in September” appearing after the June 9, 2022 gathering could feature at Thursday’s communiqué. This looks somewhat far-fetched considering President Lagarde’s inclination to avoid any precommitment, but the ECB has utilized this approach in the past and could possibly employ it again, if deemed necessary.
A comment on the various ECB purchase programmes usually follows
Βarring a surprise, no change at both the Asset purchase programme (APP) and pandemic emergency purchase programme (PEPP) is expected. The PEPP was amended at the December 2023 meeting with the ECB announcing its intention to reduce the PEPP portfolio by €7.5bn per month on average over the second half of 2024. It also maintained its original promise of discontinuing reinvestments under the PEPP at the end of 2024. Another amendment to the PEPP announced on Thursday could mean that a rate cut could be closer than currently foreseen by the market.
The “Refinancing operations” section is usually last
The refinancing section of this press communication is usually not market moving. However, the final four operations of the third TLTRO programme mature during 2024 with the first, and biggest one with €215.5bn outstanding amount, scheduled for a March 27 maturity. Considering the €3.5trn deposited at the overnight ECB facility, the full repayment of this amount is unlikely to change the current liquidity profile of most banking institutions. Nevertheless, President Lagarde et al could have a comment on the provision of liquidity by the ECB.
Putting everything together, when the monetary policy decisions communiqué is published on Thursday at 13:15 GMT the focus should be on (1) the first section detailing the new staff projections, offering the ECB’s view on recent inflation prints and possibly including a comment from President Lagarde et al on upcoming ECB gatherings and (2) on the “Key ECB interest rates” segment potentially signalling a rate cut in April or June.