Time for shock and awe: Five questions for the ECB
LONDON (Reuters) – This week’s European Central Bank meeting is shaping up as one of the most anticipated in years as the central bank gears up to boost a frail economy with a series of stimulus measures.
A global trade war threatens to push the powerhouse German economy into recession and headwinds from Brexit are becoming stronger. No wonder the ECB has all but promised fresh stimulus on Thursday, one of the last steps the bank’s chief Mario Draghi can take before stepping down on Oct. 31.
“This will probably be the most interesting meeting since March 2016 because we have this confluence of economic issues, political issues and a transition to a new president coming together,” said Pictet Wealth Management strategist Frederik Ducrozet.
He was referring to the 2016 meeting where the ECB slashed its depo rate to -0.40%, increased monthly asset purchases to 80 billion euros including corporate bonds, and launched a second round of cheap multi-year loans.
Fast forward to this week and here are five key questions for markets:
- How low will rates go?
The ECB is leaning toward a package that includes a rate cut, a beefed-up pledge to keep rates low for longer and compensation for banks over the side-effects of negative rates, sources told Reuters last week.
At the very least, markets expect a 10 basis point cut in the deposit rate to -0.50% — the first cut since 2016.
Money market pricing ECBWATCH suggests some investors are betting on a bigger 20 bps cut; nearly a quarter of economists polled by Reuters expect this too.
The ECB may could also use its forward guidance to flag another cut in coming months. Markets price in 35 bps worth of easing in total by end-2020.
Συνέχεια ανάγνωσης εδώ: www.reuters.com
