FRANKFURT: With inflation now back in negative territory and the economic outlook clouding over, the European Central Bank (ECB) is widely expected to give the eurozone another “adrenaline shot” of stimulus measures at its policy meeting Thursday, analysts said.
Moves announced by the ECB back in December were perceived by the financial markets as being half-hearted.
So, ECB chief Mario Draghi is set to announce bolder measures at his traditional post-meeting news conference this time, central bank watchers predicted.
These would likely include a further cut in interest rates, an increase in the volume of bonds it buys each month under its so-called quantitative easing or QE program and possibly a further extension of that measure beyond its current timeframe of March 2017.
“Further policy action seems all but inevitable this month,” said Ben May of Oxford Economics.
“We expect the ECB to announce a package of measures,” the expert said.
May forecast a reduction in the bank’s deposit rate from minus 0.30 to minus 0.50 percent and an increase in the monthly QE purchases from 60 billion euros ($66 billion) to 80 billion euros.
The ECB could also announce a replacement liquidity program to run after its final TLTRO auction in June, May argued.
With area-wide falling inflation back in negative territory in February for the first time in five months—it fell to minus 0.2 percent—and eurozone growth not expected to pick up speed any time soon, the case for further stimulus measures is clear, analysts agreed
At the last meeting in January, president Mario Draghi promised that the ECB’s decision-making governing council would “review and possibly reconsider” the policy stance this month.
For UniCredit analyst Marco Valli that meant that “further monetary accommodation this week appears to be a done deal.”
The deposit rate is the interest the ECB usually pays banks for the excess funds they place at the central bank overnight.
But it has been negative since June 2014, meaning the ECB effectively charges the banks for using the facility, in the hope that banks will instead lend the funds out to businesses and companies to get the economy moving.
However, banks complain the currently ultra-low interest rate environment is eroding profits and pushing the deposit further into negative territory could harm them further still.
The powerful German banking federation BdB is opposed to opening up the monetary sluice gates still further, insisting it will not provide any additional boost to economic growth.
“On the contrary, additional expansionary measures will do more harm than good,” it said on Wednesday.