Highlights:

• At today’s meeting the ECB’s Governing Council (GC) left its key rates unchanged, in line with expectations.  
• Most importantly, the Governing Council (GC) became more confident on the medium-term inflation outlook and now even speaks of a “declining trend in underlying inflation”. And in the press conference President Lagarde ex-pressed increased confidence that higher wages eat primarily into profits and not boost inflation. 
• That said, she also played down the importance of the GC’s wording and stated that more reassuring inflation data would be needed emphasizing again data-dependence of future decisions. 
• Rate cuts were not discussed today. We think that the update of the growth and inflation projections by March will fuel this discussion. We stick to our call of a first rate cut by June but given the cautiously dovish tone of today’s meeting the risk of a cut before June has increased somewhat.  
• Markets perceived today’s ECB meeting as dovish and increased the probability of an April cut from 67% to 87%. Bund yields and the EUR receded while equities reversed their morning losses. 
  
   

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