European Central Bank (ECB) President Mario Draghi didn’t leave any doubt about his institution’s conviction to do “whatever it takes” to counter a fall in inflation expectations when he spoke at the banks annual gathering recently in Sintra, Portugal.
All instruments are on the table and can be deployed. That was the message. The question now is: Will anything happen as early as this week?
Expectations are divided as to whether the ECB wants to pre-empt a policy move by the U.S. Federal Reserve that pushes down the dollar and strengthens the euro as this would hurt euro zone exporters and weigh on inflation further.
Traditional ECB watchers though expect a change in the central bank’s forward guidance at this month’s meeting on Thursday and then potential action on interest rates at its meeting in September.
“In response to the weak growth and still subdued inflation, the ECB will likely adjust its guidance in July and vow to keep rates at ‘present or lower’ rather than just at ‘present’ levels,” said Florian Hense, an economist with Berenberg, in a research note earlier this month.
“In September the ECB could cut its deposit rate from -0.4% to -0.5% and to relaunch net asset purchases of around 40 billion euros for 12 months starting in (the fourth quarter of 2019),” he added.
Inflation expectations continue to be stubbornly low and the trade war risk is a drag on economic activity and sentiment especially for export-oriented economies.
Meanwhile, Carsten Brzeski, a chief economist at ING Germany, said in a recent note that it was worrying that there were now signs that the solid domestic part of the euro zone economy was also faltering.
“In particular, German data is worrisome with an increase in short-term working schemes, fading momentum in the labor market and falling retail sales,” he said.
Philip Lane, the ECB’s new chief economist, told an audience on July 2 in Helsinki that “my assessment is that the evidence shows that our package of monetary policy measures has been an effective response to the environment the ECB has faced in recent years.”
“Furthermore the effectiveness of the policy toolkit means that we can add further monetary accommodation if it is required to deliver our objective.”
Source: CNBC
Read more:
25 Canada Square, Level 33, office 50, Canary Wharf London, E14 5LQ +44 20 3608 6256
World Financial Markets - 0700 17 600 Varchev Exchange - 0700 115 44
Varchev Finance Ltd is registered in the FCA (FINANCIAL CONDUCT AUTHORITY) with a passport in the United Kingdom: FCA, United Kingdom - registration number: 494 045, which allows provision of financial services in the United Kingdom.
Varchev Finance Ltd strictly comply with the statutes of the European directive MiFID (Markets in Financial Instruments). targeting increased efficiency, transparency and uniformity of financial instruments.
Varchev Finance Ltd is authorized and regulated by the Financial Supervision Commission - Sofia, Bulgaria: License number RG-03-02-05 / 15.03.2006
The information on this site is not intended for distribution or use by any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.
Disclaimer:
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 63,41% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money.