ECB preview: waiting for Brexit, no details on TLTRO III yet

We expect the April ECB policy meeting to be uneventful. Although growth and inflation data remain indicative for a fragile economy, financial conditions have eased again and remain overall very accommodative. The uncertainty regarding the specifics of Brexit are putting the ECB firmly on hold at this point. We therefore also do not expect to get any more clarity on the conditions of the TLTRO III operations. T hese conditions will in the end depend crucially on the economic outlook. We changed earlier this week our ECB rate call. We have pushed back our first rate hike to October 2020. Several factors are behind this change of our forecast. For one, we expect the ECB to introduce a tiering system for banks’ excess liquidity, reducing the pressure to lift rates out of negative territory. Moreover, we now expect the Fed to cut rates by the end of the year, which w ould make it difficult for the ECB to hike rates without risking a sharp appreciation of the exchange rate (see also here ) .