ECB unlikely to announce any major policy changes this week, says ANZ Research

The European Central Bank (ECB) is expected not to announce any major policy changes at its July meeting. However, it is possible the central bank will again tweak its forward guidance after making a change in June. This time around, the ECB may remove its easing bias with respect to its unconventional policy settings by dropping its reference to increasing the size and/or duration of its asset purchase program.

There is expected to be plenty of interest in whether or not the Governing Council is comfortable with the market reaction to the shift to more hawkish rhetoric from central bankers globally, inclusive of President Mario Draghi. There has been a reasonable tightening in financial conditions since early-to mid-April; 10-year bund yields have risen by almost 45 basis points, while the EUR has appreciated by around 8 percent against the USD, ANZ Research reported.

Draghi has become more confident about the inflation outlook. At a speech on the June 29, he said that the ECB could be confident that its policy is working and that deflation risks have abated.

In addition, he was of the view that reflationary forces are at play, and that the central bank can be more assured about the return of inflation to the objective than was a few years ago. That said, he indicated that a considerable degree of monetary accommodation is still needed for inflation dynamics to become durable and self-sustaining.

"We do not expect Draghi or the Governing Council to be overly concerned, as financial conditions remain highly accommodative. Moreover, the data flow continues to highlight broad-based above-trend growth," the report said.

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