ECB preview: focus on TLTRO III details

We expect no change of policy at next week’s ECB meeting. We also expect the core elements of the prepared statement to be unchanged. Although latest data have been mixed, they remain overall consistent with moderate growth in the euro area and do not point to any immediate need to reconsider the ECB’s policy stance. The focus of the June meeting will be the details of the new TLTR O III funding operations. Based on credit developments in peripheral countries, we think that the spread applied will be between -20bp to -40bp. Another question the Governing Council will have to address is a “mitigation of possible side effects” of negative interest rates. Statements from several GC members speaking out against a tiering system , signal that we should not expect any decision on this for the time being. Rate cuts by the Fed later this year, however, could reignite the debate regarding tiering .