Overview : As expected rates were kept unchanged at 2% at today's meeting. The statement and Q&A did not change much in respect of the outlook for ECB monetary policy, in our opinion. ECB continued to focus on downside risks to growth and did nothing to change market expectations of a 50 basis point cut in March. We therefore stick to our call for 50bp in March from the ECB and unchanged thereafter. The risk is of further easing during the spring.


Details : As usual the most interesting part of the press conference was the Q&A session. Trichet overall continued to strike a quite downbeat tone. Previously ECB has emphasised that ECB would not move into the liquidity trap hinting that they saw a limit to how much further they could cut rates. But at today's press conference Trichet only said that zero rates were not appropriate at the current stage, but as such did not rule out it could happen. He also said that ECB excludes nothing. We don't expect ECB to go to zero rates but the change in their communication on this matter is interesting. Trichet said the market might be right pricing in a 50bp cut - but as usual they do not precommit.


In the actual statement risks to growth are seen on the downside. The ECB notes that there has been tentative signs of stabilisation in some survey data, albeit at historically low levels. It also added that these indications need confirmation on a broader basis.

On inflation the ECB sees inflation falling to very low levels at mid-year, which will mainly be due to base effects from oil prices. In the medium term the ECB expects inflation to be in line with price stability. On downside risk it points to an increased weakening of the economy and on the upside it points to a potential reversal in commodity prices and the possibility of stronger domestic price pressures.


Outlook and assessment : The ECB continues to focus on downside risks to growth and have not changed the language in a more neutral mode like we saw, for example, with Norges Bank yesterday. 2y bond yields fell close to 10bp on this. We look for further easing of 50bp in March and see risk of further easing later.