ECB against EUR appreciation – BofA report

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Although the ECB press conference started in a very conventional way, Mario Draghi’s Q&A lifted spirits, the latest Bank of America Merrill Lynch’s report says.

In BofA’s opinion, Draghi’s speech paved the way to rate cuts and raised concerns about too low inflation, which will likely be reflected in the
June staff projections.

According to the report, given February and March lower than expected inflation
numbers, and given the exchange rate appreciation since the March meeting, Draghi made it hard for himself to avoid action in June.

BofA has then highlighted scenarios on the exchange rate and data
to narrow the scope of possibilities ahead of the June meeting.

“In our view, the key variables to watch are real data, soft indicators, and inflation, but not necessarily credit growth.

“Our central scenario is that 2014 inflation projections will be revised down to 0.8% on the basis of February and March numbers only, i.e. everything else remaining equal, and to 1.2% for 2015. This by itself might not be enough to trigger a rate cut,” it said.

Click here to see full report.


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