The European Central Bank monetary policy meeting is on meet on January 21

Here is Nomura's preview of the ECB meeting. First their 'in a nutshell' view:

Europe

  • Weak potential growth, high non-performing loans and rising debt trajectories remain key euro area challenges
  • We continue to expect HICP inflation to remain below ECB expectations in the medium term
  • The ECB extended the APP to "end of March 2017, or beyond" and is now calibrated at €1.5trn (14% of GDP)
  • We expect the ECB to add further stimulus via the APP and potentially the deposit rate
  • Q2 2016 is probably the earliest timing (although March should not be ruled out)
  • Renewed oil price falls will dampen the rise in inflation. We expect this to keep the BoE on hold until November 2016

(Yes, referring to the BoE here)

  • Sustained cyclical strength has used up spare capacity and builds risks, but we do not expect a correction soon

More specifically on the ECB meeting this week (any bolding is mine):

  • We do not expect the Governing Council to make any changes to its monetary policy stance so soon after the 3 December easing. While some members were even resistant to further measures on 3 December, in our view the recent Account of that monetary policy meeting indicates that the Governing Council has room and potential appetite to deliver further easing
  • Therefore, the 21 January meeting will be important for assessing the tolerance level within the Governing Council to significant weakening in the short-term inflation outlook that is evolving (with inflation shaping up to turn negative again in March and remain there until August) and the earliest point at which the ECB is willing to make a "reassessment" on further easing
  • The introductory statement is likely to adopt similar language to September, by noting that renewed downside risks have emerged to the outlook for growth and inflation
  • However, the Governing Council is likely to judge it premature to conclude whether the renewed sharp fluctuations in financial and commodity markets will have a lasting impact on the achievement of a sustained adjustment in inflation
  • However, we expect a clear easing bias to remain, with the Governing Council repeating that, if warranted, it is willing and able to act by using all the instruments available within its mandate in order to maintain an appropriate degree of monetary accommodation
  • The potential for a more dovish-sounding ECB next week is likely to result in markets increasingly embracing the view that more easing is likely this year as they are put on alert to the deterioration in the inflation outlook, inflation expectations and financial conditions (including rising real rates)
  • Overall, recent inflation/oil developments have offered little respite for the ECB and will keep the Governing Council under pressure to do more in the first half of this year, as per our baseline (more likely in Q2, although the focus on the 10 March meeting will likely increase as inflation/inflation expectations drop)