"Now is a good time for an interest cut by 25 bp" suggests Adam Narczewki, who gives this move a 75% chance. The majority analysts whom we have asked for their opinion on the outcome of the upcoming ECB meeting also believe this would be the best strategy for stimulating the ailing EU economy.
"A rate cut was already on the cards last time and some members have hinted that this will the outcome," reminds Yohay Elam. Alberto Muñoz points out that ECB's failure to proceed with a rate reduction might cause "a strong sell off" in the market as it would "consider that the ECB is a useless institution with not power enough to face the current Eurozone challenges."
Steve Ruffley is the only analyst among those polled for the special forecast report to strongly express his doubts about the central bank’s willingness to ease rates in July. "Why would they?" he says adding that "a 25 base point rate cut is not going to miraculously cure the sovereign debt woes of Spain and Italy and it is not the ECB's job to prop up ailing nations with stimulus. That is the job of the individual member states," he concludes.
The ECB will communicate its monetary policy decision on July 5 at 11:45 GMT. Read below full forecasts of the market experts.
Clemente De Lucia - Economist at BNP Paribas:"During the crisis, the ECB Governing Council made it clear that what drives the ECB’s standard actions – i.e. decisions on key policy rates - is its assessment of medium-term inflation prospects. Over recent months, inflation has been easing and sluggish economic prospects signal that inflation will continue declining going forward. Given the poor state of the economy, wage, cost and price pressures will remain moderate over the forecast horizon. In particular, wage growth will remain subdued, with Germany probably the only exception. At 11%, the unemployment rate has reached its highest level since the launch of euro. Under the current economic environment, labour market conditions will continue to deteriorate. The conditions for further interest rates cuts over the coming months are therefore in place. The refi rate might be reduced by 50bp before the end of Q3. However, interest rates are already extremely low, and this will reduce the impact of further cuts. Nevertheless, many credit institutions are still highly dependent on ECB liquidity. Cutting the interest rate will therefore reduce their liquidity costs. An interest rate cut could reduce somewhat tensions in the market. Nevertheless, ECB actions can not solve eurozone underlying problems. Structural problems require structural solutions which can be provided only by national authorities and EU leaders."
Steve Ruffley - Analyst at Tradermaker.com:"With higher inflation rates still prevalent and poor economic data coming from many of the core Euro zone countries there is a case for the ECB cutting its main benchmark refinancing rate in June. I however believe that there will be little in the way of additional rate cuts arguing more that the ECB may continue to signal its willingness to support political attempts to improve growth through stimulus but falling short of a firm commitment to cut rates. Last month's meeting gave Draghi a prime opportunity to signal further monetary easing, instead the governing council merely ignored such a bias, choosing a more hawkish rhetoric regarding tools such as the SMP bond purchasing scheme. Easing the range of securities it accepts from euro-zone banks in exchange for ECB loans last week has set the stall for where the ECB are heading, and to us it is not into the land of 0% rates.
Why would they? A 25 base point rate cut is not going to miraculously cure the sovereign debt woes of Spain and Italy and it is not the ECB's job to prop up ailing nations with stimulus. That is the job of the individual member states."