Eurozone inflation rate fall adds to pressure on ECB (see full article here bbc.in/1rGtoMb) Aengus Collins, editor/economist with The EIU, comments before the ECBs upcoming meeting today regarding possible interest rate cuts: This was the eighth consecutive month in which the inflation rate has been below 1%, a level which the president of the European Central Bank (ECB), Mario Draghi, has referred to as a danger zone. Mr Draghi has already clearly signalled that the bank intends to ease its policy stance when it meets on June 5th. We expect the bank to cut its policy rates, but this move has already been priced in by the financial markets. Given the length of time it has taken Mr Draghi to build consensus on the ECBs governing council behind a rate reduction, there are serious questions as to the ECBs capacity to deliver a sufficient policy response to disinflationary pressures that appear increasingly broad-based and entrenched. A dip in the German inflation rate to 0.6% is of concern, as is the slide in core inflation (excluding energy and food) across the euro zone to 0.7%. As well as making a rate cut on Thursday all but certain, these latest figures also increase the probability that the ECB will have turn to non-conventional instruments. An announcement in June cannot be ruled out, but on balance we expect the bank to wait before announcing non-conventional measures.
Posted on: Thu, 05 Jun 2014 09:13:49 +0000
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