European Central Bank ‘finally ready’ to act to fight deflation
Financial markets are betting on an interest rate cut from the European Central Bank next week as low inflation, the strong euro and anaemic credit finally spur it into action.
The ECB has held its key interest rates steady at their current all-time lows since November, repeatedly promising to act if necessary to avert deflation in the 18 countries that share the euro.
Inflation is still way below the ECBâs target of 2.0 percent and shows little sign of picking up any time soon. Hence, ECB president Mario Draghi more or less pre-announced a move at the bankâs last policy meeting, saying the central bankâs decision-making governing council was âdissatisfiedâ with the current path of inflation and was ânot prepared to accept it as a fact of nature.â But the precise method and extent of any monetary easing would depend on the ECBâs updated inflation forecasts, scheduled for next week, Draghi said.
âI would be very surprised if nothing happensâ at the meeting on May 5, UniCredit economist Marco Valli told AFP. âThe markets would not take it very well.â
âEconomic conditions in the eurozone certainly justify strong action, especially inflation persistently below 1.0 percent since October,â said IHS Global Insight analyst Howard Archer. âAnd if the ECB fails to deliver having built up expectations, it risks upsetting the markets and also denting its credibility.â A range of data last week backed up the need to act. Area-wide growth came in at a disappointingly meagre 0.2 percent. Money supply growth â which the ECB uses as a guide to future inflation â was anaemic. And loans to the private sector, hitherto the stumbling block to a more sustained...
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