European Central Bank likely to end status quo on monetary policy

The European Central Bank (ECB) is expected to hold its first monetary policy meeting of 2017 on Thursday, January 19. It is widely expected to end in the decision to maintain the status quo on monetary policy. Also, the tone of the accompanying press conference given by President Mario Draghi should similar to that of the previous month.

In December, the European Central Bank extended the quantitative easing (QE) program by nine months from April 2017 whilst cutting back on quantum of purchases. They flagged risks that growth this year faces downside risks from lingering political uncertainty ahead of elections and a challenging external environment, reported DBS Group Research.

The uptick in inflation was put to the bounce in energy prices whilst underlying inflation remained tepid. We expect this guidance to be reinforced this week. This will help to contain any expectations of a further rollback in their QE purchases, they added.

In terms of the economic indicator releases, the market will scrutinise the January German ZEW survey which we think will show a further improvement in investor sentiment about the country’s economic prospects in a couple of quarters’ time.

Final December HICP data for both Germany and the Eurozone are due and should be confirmed at their respective preliminary readings. Eurozone external trade figures for Nov are likely to reveal healthy surpluses on both the merchandise trade and current account balances, and German Dec PPI data should reveal the extent to which pipeline cost pressures have been bearing up on overall inflation.