European Central Bank’s President, Draghi affirmed his institution’s aim to do whatever is possible for countering expected falling inflation during his speech at an annual gathering of banks held in Sintra, Portugal recently. He stated that he had no hesitation using all the possible means to address this problem. However, analysts are now wondering whether any measures would be taken this week.
Analysts are divided whether ECB would be preemptively moving against a policy decision by US Fed Reserve, aimed at pushing the dollar down and strengthening euro’s value since this is likely to affect inflation and hurt euro-zone exporters.
ECB watchers currently expect it to modify its forward guidance during the meeting this month, with potential action regarding interest rates in September, 2019. Florian Hense of Berenberg stated that due to subdued inflation and weak growth, it was likely that the ECB would lower its rates and modify guidance. Deposit rates could be cut down to around -0.5%. Net assets purchases could also be re-launched at around 40 billion euros for a year, he added.
Inflation predictions are quite low. Current trade war is dragging down economic sentiment and activity in export-oriented countries. Carsten Brzeski of ING Germany has stated that the euro-zone economy is currently in decline. Fall in retail sales, losing labor market momentum in Germany was particularly a matter of concern.
Philip Lane of the ECB stated that his evidence showed the new monetary policy solutions to be useful in countering the problems before the ECB. He also stated that this increased effectiveness meant that additional monetary accommodation steps could be taken with ease if more objectives had to be accomplished.
This means that Lane could be considering a full-blown package implementation instead of taking small steps. This could translate to bold steps being taken in September, 2019.
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