ECB set to sketch path for new stimulus
The European Central Bank is likely to point Thursday to a cut in interest rates in September, analysts say, although recent hints about kick-starting sluggish growth and inflation might even bring forward a move to this week.
Expectations for a possible cut at the summer gathering have been heightened in recent weeks by the ECB itself talking up the possibility of action.
In June, ECB president Mario Draghi made clear that “in the absence of improvement... additional stimulus will be required”, meaning the institution will not wait for economic conditions to worsen before acting.
While highlighting a resilient domestic economy, members of the ECB governing council in Frankfurt will keep a close eye on risks outside the single currency area.
These include US-led protectionism, the danger of a no-deal Brexit, weakness in emerging markets and geopolitical risks, such as growing tensions with Iran around key Gulf shipping routes.
Surveys have for months pointed to an economic slowdown in the second and third quarters from the 0.4 percent growth booked in January-March.
Slower growth in turn threatens the central bank’s inflation target of just below 2.0 percent.
Inflation came in at 1.3 percent in June.
This week, “it seems as if the ECB will try to talk a very final talk before walking the walk” of rate cuts or even more drastic measures at its September meeting, ING economist Carsten Brzeski said.
Pictet Wealth Management strategist Frederik Ducrozet said “the most natural path” for the ECB’s policymakers would be opening their “forward guidance” policy statement to the possibility of lower rates.
In June, the ECB had said rates will “remain at their present levels at least through the first half of 2020”.
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