Saturday 20 December 2014

ECB: Analysts divided over interest rate cut

Published 06/02/2014 | 02:30

The headquarters of the European Central Bank  in Frankfurt, Germany
The headquarters of the European Central Bank in Frankfurt, Germany

ANALYSTS are divided on whether the European Central Bank will move to cut its main interest rate beyond the current record low when it meets today.

Pressure has been intensifying on the Frankfurt-based central bank to take action amid recent disappointing data on inflation.

Some experts are predicting that the ECB is likely to keep policy on hold today, with a strong risk of easing in the coming months as inflation slows.

But Deutsche Bank, RBS and Barclays all expect ECB chief Mario Draghi to announce a rate cut this week.

And BNP Paribas said yesterday that a further cut in the refinancing rate is more likely than not, with a drop of 15 basis points to 0.1pc.

But others, including JPMorgan, Citigroup and Societe Generale predict the bank will hold off.

Deutsche Bank believes the ECB will cut both its refinancing and deposit rates. Barclays said the "persistent disinflationary pressures will be main motivation for another cut."

RBS said the ECB's "easing bias and "muscular" language on forward guidance justifies a pre-emptive strike in response to weak inflation data without delay".

But JPMorgan said the Executive Council will stay on hold for now as growth improves amid the lower inflation data.

Citigroup said Frankfurt would likely wait until March in order to review the macroeconomic forecasts. The ECB has discussed the possibility of suspending operations to soak up money it spent on sovereign bonds but this is just one policy option and is unlikely to be decided this week, according to a report from Reuters.

Ending the so-called "sterilisation" operations would inject about €175bnof liquidity into the financial system, which would help ease strains in euro zone money markets.

Irish Independent

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