ECB to lay groundwork for autumn policy shift

FRANKFURT - 20 July 2017: The European Central Bank is expected to lay the groundwork for an autumn policy shift on Thursday, emphasizing improved growth while tempering expectations after previously setting off a mini tantrum in financial markets.

ECB President Mario Draghi opened the door to policy tweaks in a speech in Sintra, Portugal, last month that was viewed as unexpectedly hawkish, sending the euro and government bond yields rallying.

Draghi is unlikely to backtrack, but may temper or at least nuance the message to keep markets at bay.

"Today's meeting is a perfect opportunity to jawbone markets back in line if it (the ECB) wishes to do so," Kenneth Broux, an analyst at Societe Generale, said.

With the end of unprecedented central bank stimulus now within sight, financial investors are nervously sifting through clues, trying to gauge how big central banks around the globe will unwind unconventional policy that have kept borrowing costs at rock bottom.

A key discussion for the ECB on Thursday may be whether policymakers should remove their pledge to increase the volume or duration of asset buys if the outlook worsens, a topic already discussed in June when further rate cuts were ruled out.

Such a move was seen by some as a foregone conclusion until Draghi argued in Sintra that improved growth may provide room for the ECB to tighten policy.