Analysts at Bank of America Merrill Lynch, thinks that the current “truce” between hawks and doves will be reflected in a dovish tone by Draghi today, with no decision.

Key Quotes

‘In our view, while the hawks may become a bit more vocal after the French elections – if a mainstream candidate wins – even in June the Governing Council’s appetite for another deep and potentially divisive decision on the monetary stance will be limited. After the summer, though, we think that a proper debate will be unavoidable.” 

“The key issue for us will be the solidity of the commitment to the integrity of the inflation target, in practical terms whether core inflation only marginally above 1%, combined with above trend GDP growth, would suffice to initiate tapering in 2018. We fear that, given the weight of the political constraints, the answer to this question is probably “yes”.”

“This is why the ECB forecasts matter, even if for the batch to be unveiled next week we do not expect revolutionary messages. Indeed, we would expect very little changes to GDP forecasts, with headline inflation being revised higher in 2017 towards 1.7-1.8%. But the key element is that core inflation will likely remain unchanged, if not revised slightly lower, still far from the ECB comfort zone. This is unlikely to change for the rest of the year, and hence it will question the credibility of the central bank once that debate starts with core inflation not far from 1%.”

“Beyond the fate of QE, clients are increasingly asking us about the articulation between policy rates and bond buying. We think that it’s a premature debate for the Governing Council at this stage. Even if we continue to believe that taking the deposit rate in negative territory was a mistake in the first place, we also think that consistency and credibility concerns would on balance convince a majority of the Governing Council to stick to the current sequencing (policy rate hike once QE’s out).”

“Trying to make it a non-event for markets

Draghi bought time when he extended QE by a year last December and he intends to use it. Eurozone data has continued to improve and headline inflation has reached 2%. However, core inflation remains below 1%, while headline inflation will decline later in the year, as the effect from higher oil prices fades. Draghi knows that he will face challenges later in the year, when markets will be looking for answers about the future of QE, but this is too far from now. The March ECB meeting should be a non-event.”