The bank said that while his press conference was initially very conventional, when he took questions at the end his responses were illuminating.
BAML said Draghi appeared to offer clearer acknowledgment of the undesirability of continued very low inflation. This combined with apparent acceptance that Euro zone inflation numbers in February and March have been lower than expected and show no signs of an increase makes it difficult for him to avoid action, BAML said.
The key variables to watch in calling the rate cut are real data, soft indicators, and of course inflation. BAML is expecting 2014 inflation projections to be revised down to 0.8% and 2015 to 1.2%, on the basis of the February and March figures.
In the bank’s view this means a cut is more likely than not, unless the Euro weakens, inflation surprises on the upside, or data gets stronger. If the Euro appreciates, which is regarded as a possibility, that could mean inflation projections are revised down even further, adding more pressure.
UBS’ European economists meanwhile, are calling for the ECB to make a 15bps cut across the whole interest rate corridor as early as June.
A consensus is forming that any near term pick-up in inflation which would quieten such calls seems unlikely, with Goldman Sachs also predicting Euro area inflation to remain around current levels until at least October.
