Central Banks

Macron's victory doesn't mean Draghi will start tightening

Daniel Roland | AFP | Getty Images

Political uncertainty has begun to dissipate in the euro zone after the Dutch general election and, more recently, the first round of the French presidential race. However, European politics are still a concern and it is too early for the central bank to consider raising rates, analysts told CNBC.

"There is no denying that the French election result (with the tail risk of a 2nd round between Mélenchon and Le Pen now out of the window) has given renewed impetus to speculation that the ECB might dial back quantitative easing earlier than planned, or might hike rates sooner than markets had been pricing in," Elwin de Groot, senior market economist at Rabobank told CNBC via email.

"Having said that, I believe it is still early days," he added.

The European Central Bank is meeting Thursday but expectations are that it will not announce any policy changes. The first round of the French election is over but the country has yet to make a final decision between the centrist Emmanuel Macron and the far-right candidate Marine Le Pen.

"Even assuming Macron secures his victory in the second round, it is also important that he will garner sufficient support in parliament," de Groot noted, in relation to the upcoming parliamentary vote.

Carsten Brzeski, chief economist at ING, said the ECB is "highly unlikely" to do anything in between the first and second rounds of the French election.

"The timing of this week's ECB meeting could have been hardly more unfortunate. Even though the economic data since the March meeting has supported the view of brightening economic prospects, slowly paving the way for a very gentle exit from the current ultra-loose monetary policy, this week's meeting simply comes too early for any change," he said.

Even as the political landscape becomes a lot clearer and economic data strengthens, analysts don't expect too much from President Mario Draghi when he addresses the press, but there may be small changes in the language he uses.

"It is possible that the ECB will remove the language stating that the risks "remain tilted to the downside" and we would expect the commentary to remain relatively upbeat on the growth outlook given the improving business and consumer confidence surveys," Mike Bell, Global Market Strategist, JPMorgan Asset Management.

If this proves to be the case, there could be renewed comments from Germany criticizing the ECB's loose monetary stance. Several central bank and finance ministry officials have complained that the ECB's stimulus is hurting banks' balance sheets.

But Axel Weber, UBS chairman, said during an interview with CNBC in Washington that the ECB has to look at the 19 euro economies and not only to those that are performing the best.

Don’t see fiscal policy being a major solution in Europe: Weber

"Some euro economies have recovered from the crisis at a faster pace than others, which has been the case of Germany. However, the ECB's mandate is to look at the European average," Weber said.

"I think it's unlikely the majority of the governing council is going to share (the German) view and therefore I don't think the ECB will change anything in its policies this year," Weber added.

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