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ECB likely to be slightly dovish during April meeting, says Dankse Bank

At the upcoming meeting of the European Central Bank this week, Mario Draghi is likely to be a bit dovish as the key message will be that the central bank is on autopilot with its present monetary policy, noted Danske Bank in a research report. Recently, Draghi had mentioned that the current monetary policy stance’s reassessment is not required at this stage and he is expected to repeat this statement again during the meeting.

After the latest meeting of the ECB, speculations regarding the sequencing of the central bank’s withdrawal from the very accommodative monetary policy rose. Also, the market had priced a 10 basis points deposit rate rise in 2017. However, following the dovish view expressed by prominent ECB members, the pricing of a rate hike has been pushed down to the end of 2018. This, thereby dampens expectations of market participants.

“In our view, the recent dovish tone reflects the ECB's perception of the pricing of hikes as a tightening of the financial conditions, which it considered as unwarranted”, stated Danske Bank.

In spite of the likely dovish communication during the forthcoming meeting, the central bank might later its forward guidance on policy rates during the meeting in June. But, there is a risk that the European Central Bank also take an additional cautious approach during its June meeting. Draghi had stated recently that before making any changes to the components of the central bank’s stance – asset purchases, interest rates and forward guidance, the ECB still needs to build enough sentiment that inflation will reach the target rate.

The ECB is expected to announce an extension of its EUR 60 billion monthly QE purchases during its meeting in September and thus carry on with the buying program next year, added Danske Bank.

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