ECB may indicate a possible rate cut coming in September

Market Trends - 25/07/2019

The President of the European Central Bank Mario Draghi leaves no room for uncertainty regarding his promise to do “whatever it takes” to stop a decline in inflation expectations. The strong statement came during his speech at the banks yearly meeting recently in Portugal.

Every single mechanism is available and can be deployed if needed.

The President of the European Central Bank Mario Draghi is committed to do whatever is needed in order to come out with the best strategy. That was the statement meaning.

Expectations are split as to whether the ECB needs to take action to prevent a decisive move by the U.S. Fed that drives the greenback down and increases the euro. That could eventually damage Eurozone exporters and press further against inflation.  The economist Florian Hense said, “In response to the weak growth and still subdued inflation, the ECB will likely adjust its guidance in July and vow to keep rates at ‘present or lower’ rather than just at ‘present’ levels,” in a research note earlier this month. And added, “In September the ECB could cut its deposit rate from -0.4% to -0.5% and to relaunch net asset purchases of around 40 billion euros for 12 months starting in (the fourth quarter of 2019),”.

What is widely expected is that Inflation will remain to be persistently weak and the trade war uncertainty will press the economic activity down.

In the meantime, Carsten Brzeski, a chief economist at ING Germany said, “In particular, German data is worrisome with an increase in short-term working schemes, fading momentum in the labor market and falling retail sales”.

A new chief economist at ECB’s Philip Lane, said “my assessment is that the evidence shows that our package of monetary policy measures has been an effective response to the environment the ECB has faced in recent years.”

“Furthermore the effectiveness of the policy toolkit means that we can add further monetary accommodation if it is required to deliver our objective.”

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