ECB to cut rates in September, QE 2.0 still on the cards - Reuters poll

By Richa Rebello BENGALURU (Reuters) - The European Central Bank will cut its deposit rate in September after signalling a bias to do so this month, according to economists in a Reuters poll who do not expect a turnaround in the euro zone's economic fortunes any time soon. Major central banks on both sides of the Atlantic are under pressure to ease monetary policy to keep inflation expectations from collapsing amid slowing global growth, increased trade protectionism and weak economic data.

Reuters July 18, 2019 06:06:33 IST
ECB to cut rates in September, QE 2.0 still on the cards - Reuters poll

ECB to cut rates in September QE 20 still on the cards  Reuters poll

By Richa Rebello

BENGALURU (Reuters) - The European Central Bank will cut its deposit rate in September after signalling a bias to do so this month, according to economists in a Reuters poll who do not expect a turnaround in the euro zone's economic fortunes any time soon.

Major central banks on both sides of the Atlantic are under pressure to ease monetary policy to keep inflation expectations from collapsing amid slowing global growth, increased trade protectionism and weak economic data.

When asked what the ECB was likely to do at its July meeting, two-thirds of economists said the central bank would change its forward guidance towards easing.

(GRAPHIC - Reuters Poll: What will the ECB do on July 25? - https://tmsnrt.rs/32vgqWu)

With inflation well below the central bank's target and not predicted to pick up soon, the ECB is expected to cut its deposit rate by 10 basis points to an all-time low of -0.50% in September.

"We don't think it will be enough to get inflation back on track towards target. Clearly a 10-basis point move in interest rates doesn't move the dial really," said Andrew Kenningham, chief Europe economist at Capital Economics.

"But the Governing Council will want to signal that they can do more. This ... may have some marginal impact on monetary conditions. But no, I don't think it will be enough."

Indeed, the July 4-17 Reuters poll of over 100 economists showed the outlook for euro zone growth and inflation -- and for most major economies in the region -- was at best left unchanged or downgraded compared to previous surveys.

At 1.3%, euro zone inflation is lower than where it stood when the central bank stopped its 2.6 trillion euro (£2.3 trillion) asset purchase programme in December.

While a majority of economists do not expect the ECB to relaunch asset purchases -- known as quantitative easing, or QE -- this year, nearly 40% of the respondents expected it to do so, up from about 15% last month.

"A rate cut won't do. While we do think that the ECB will cut rates, we mostly see this as a policy move that will precede the restart of QE," said Daniele Antonucci, chief euro-area economist at Morgan Stanley.

TIME TO PUSH AHEAD

The European Commission cut its euro zone growth and inflation outlook last week, citing uncertainty over U.S. trade policy.

Quarterly economic growth is set to have slowed to 0.2% last quarter and the consensus points to only a 0.3-0.4% rate of expansion in each quarter through to the end of next year.

Inflation, which the ECB targets at just below 2%, is forecast to average 1.3% this year and is not expected to hit the target at any time in the forecast horizon which runs through to 2021.

That is likely to give the ECB reason to push ahead with stimulus as hinted at in President Mario Draghi's speeches over the past month.

ECB board member Benoit Coeure said as much in a speech on Wednesday.

"Looking ahead, the Governing Council is determined to act in case of adverse contingencies and also stands ready to adjust all of its instruments, as appropriate, to ensure that inflation continues to move towards the Governing Council's inflation aim in a sustained manner," Coeure said.

The backdrop for the ECB, as for many other global central banks easing policy or considering it, is the U.S.-China trade war and the ructions it has caused. The euro zone is particularly exposed as its economy relies heavily on exports.

"I would say the dominant story remains one of trade uncertainty and that will likely dampen the prospects of recovery over the coming six months or so," said Bert Colijn, a senior economist at ING.

All but four of 63 economists who answered a separate question said International Monetary Fund Chief Christine Lagarde, who is due to replace Draghi after he leaves in October, would continue with the current policy stance.

"I think she's not uncomfortable being in this position ... because she has been a clear supporter of unconventional policy," said Frederik Ducrozet, strategist at Pictet Wealth Management.

(Analysis and polling by Tushar Goenka and Manjul Paul; Editing by Ross Finley and Catherine Evans)

This story has not been edited by Firstpost staff and is generated by auto-feed.

Updated Date:

TAGS:

also read

France, Germany to agree to NATO role against Islamic State - sources
| Reuters
World

France, Germany to agree to NATO role against Islamic State - sources | Reuters

By Robin Emmott and John Irish | BRUSSELS/PARIS BRUSSELS/PARIS France and Germany will agree to a U.S. plan for NATO to take a bigger role in the fight against Islamic militants at a meeting with President Donald Trump on Thursday, but insist the move is purely symbolic, four senior European diplomats said.The decision to allow the North Atlantic Treaty Organization to join the coalition against Islamic State in Syria and Iraq follows weeks of pressure on the two allies, who are wary of NATO confronting Russia in Syria and of alienating Arab countries who see NATO as pushing a pro-Western agenda."NATO as an institution will join the coalition," said one senior diplomat involved in the discussions. "The question is whether this just a symbolic gesture to the United States

China's Xi says navy should become world class
| Reuters
World

China's Xi says navy should become world class | Reuters

BEIJING Chinese President Xi Jinping on Wednesday called for greater efforts to make the country's navy a world class one, strong in operations on, below and above the surface, as it steps up its ability to project power far from its shores.China's navy has taken an increasingly prominent role in recent months, with a rising star admiral taking command, its first aircraft carrier sailing around self-ruled Taiwan and a new aircraft carrier launched last month.With President Donald Trump promising a US shipbuilding spree and unnerving Beijing with his unpredictable approach on hot button issues including Taiwan and the South and East China Seas, China is pushing to narrow the gap with the U.S. Navy.Inspecting navy headquarters, Xi said the navy should "aim for the top ranks in the world", the Defence Ministry said in a statement about his visit."Building a strong and modern navy is an important mark of a top ranking global military," the ministry paraphrased Xi as saying.