The ECB kept interest rate unchanged at today’s meeting. Analysts at Rabobank continue to expect the ECB to make further steps towards the exit in June.

Key Quotes: 

“It is always a challenge when you have to say something when you really don’t want to. And sometimes you can’t just run away, you have to bide your time. But Mr. Draghi can cope with such a situation like no one else, as he has amply demonstrated in the past. And several in-depth questions for Mr. Constancio – who attended his last GC meeting – provided a welcome distraction.”

“A gradual absorption of slack and rising wage growth (“some encouraging signs”) would appear sufficient at this stage for the ECB not to change its course, although the President acknowledged that “current developments” were important for the decisions that lie ahead of it, especially the question of whether the recent weakness was signalling the start of a further decline in future growth or simply a normalization to still decent growth levels.”

“We feel that that these caveats were first and foremost intended to signal that the ECB can still tweak the timing and pace of its normalization in response to any future developments without necessarily changing the general direction of its policy. For now we believe the ECB will not change tack, provided the economic outlook does not change materially.”

“It is our view that any uncertainty hereof is likely to be expressed in the timing of rate hikes rather than QE. The June meeting – which comes with updated projections – still remains the most likely date for an overhaul of its forward guidance and the announcement of future steps to end QE. We expect a final extension to end-2018, paired with an overhaul of the communication framework.”