Draghi will have the last chance to raise interest rates before the economy slows down

The European Central Bank will have a narrow window of action in which it will be able to raise the base rate before the eurozone economy is completely weakened.

Mario Draghi is supposed to raise interest rates around his last meeting in October, but his successor will be able to fully trigger monetary policy tightening until the spring of 2020 when Europe's economy is expected to "cushion" to hinder tightening.

"If they have a good opportunity, the bank will act, but obviously it will be under the assumption that the economy will continue to grow." - says Elwin de Groot, Senior Economist at Rabobank. "By the end of 2020, it is quite possible to begin to face even greater difficulties."

Economists have lowered their expectations for higher interest rates after a series of disappointing macroeconomic data. The problems in the region only mingle with the global prospect of worsening and increasing geopolitical risks, which in its own right hurts growth.

Estimates suggest a loss in Europe's economic inertia, a relentless tension in trade relations and chaotic Brexit. These are the biggest threats.

The weakening has already reflected on the euro, which is downwards against the dollar by 0.5% and 2% against the pound this month. However, officials are warning not to make a final pessimism.

"We will not be wrong if we describe the risks as a consequence of negative events, but this can be understood by market participants as the need to loosen the monetary policy further." - says Kristian Toedtmann, Dekabank economist.

In an attempt to reduce concerns about the tightening of financial conditions, the ECB offers long-term loans to banks before they are already maturing in 2020.

Source: Bloomberg Finance L.P.

Graphs: Used with permission of Bloomberg Finance L.P.

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