The ECB meeting on February 4th is likely to be uneventful, with interest rates on hold and no significant change to existing plans to gradually phase out unconventional support for the banking sector. The Bank will return to a system of auctioning off limited funds in time, perhaps starting by applying a spread to three-month loans after April this year. But there will be plenty of liquidity in the system for some time yet. What’s more, the benign outlook for inflation supports our view that official interest rates will remain at 1% for much longer than markets expect.
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