ECB and the BoE expected to remain on hold in December

Despite recent hints that the ECB is considering carrying out another rate cut and signs of the Eurozone entering a double-dip recession, the central bank is generally not expected to take action in December. The Bank of England will most probably remain on hold as well.


Steve Ruffley and Clemente De Lucia believe that the ECB will not make any move before January 2013 or even longer, as it has already done a lot to fight the debt crisis and now it needs to observe the effects of its actions. According to Clemente De Lucia, "the successful announcement of the OMT, in terms of reduction of interest rates and tensions, has reduced the need for an interest rate cut." Steve Ruffley adds that "there are still far too many downside risks in Europe and with inflation still well above target a cut in not the answer to the overall underlying problems."

Other analysts polled for the special forecast report are not as certain that the ECB will remain on hold in December, although they agree that "Draghi does not seem to be in rush to act just yet," in the words of Yohay Elam.


BoE's upcoming monetary policy meeting also arouses some speculation. The majority of the contributing market experts believe that the central bank will remain on hold but, as Yohay Elam stresses "an expansion of the QE program cannot be ruled out after one member already voted for it in November." A decision to leave the monetary policy unchanged in December would "have a positive impact in GBP across the market, not only against USD," in the opinion of Alberto Muñoz.

The BoE and the ECB will announce their monetary policy decisions on December 6 at 12:00 and 12:45 GMT, respectively. Please read below full forecasts of the contributing analysts.

Steve Ruffley – Owner of

Steve Ruffley ECB:
"The recent poor economic data out of Germany and the constant threat of Greece and Spain going into melt down had led Draghi, for me, to be quite clear. When asked about what the ECB could do for Greece, 'The ECB is by and large done,' Draghi told his monthly news conference. There is very little room for manoeuvre, the ECB has tried to stimulate growth while on the same hand steady the market’s confidence in the Euro and weaker member nation economies. This sentiment clearly is not filtering through. There are still far too many downside risks in Europe and with inflation still well above target a cut in not the answer to the overall underlying problems. Saving this we know that the EBC monetary policy in his own words 'very accommodative' you certainly don’t have to be an economist to realise that, so the question there in lies, what would prompt this seemingly inevitable cut in rates?
In my opinion the ECB like everyone else in the world will wait until after Christmas to make a change. The turning point will be when Spain inevitably has to be bailed out. They are currently waiting for the reassurance that borrowing costs will not go up with ECB intervention. They ECB have proven they can’t control the money markets so this would be a pointless and futile promise to make, which they indeed would not."

"The underlying fact of the matter is that markets have to decide when we are going to stop looking at growth data and go back to looking at inflation data. We have almost ignored the real inflation figures in the last year sighting it as a necessary evil while we focus on growth. Where is this growth? Mervin King himself described the economy being on 'a long and winding road' and there is little chance we are going to see either significant public sector sending or a surge in private business revenues that will change this outlook.
In my view the sooner the government gets a grip on inflation and interest rates the better. In the long term we know that inflation if bad for any economy. It is hitting people where it hurts the most, in essentials and day to day living. We have almost admitted that there will be little room for growth in the UK for some time so they should make a effort to control inflation and also preparing the nation for inevitable rise in interest rates and what they will do to their spending power. The GBP/USD has been is a steady range between 1.539 and 1.6304 over the last few months. Even with continued stimulus I see that the GBP has room on the downside and may fall as low as 1.5230 before it rises again."

Clemente De Lucia - Economist at BNP Paribas:

Clemente de Lucia ECB:
"We think the ECB is in a kind of 'wait and see' mood. The ECB has done a lot to solve the crisis, providing unlimited liquidity to commercial banks at fixed rate and reducing significantly tensions in financial markets. The risk of reversibility of the euro was significantly distorting the functioning of the debt market, which is a key element for the interest rate transmission channel of monetary policy. The successful announcement of the OMT, in terms of reduction of interest rates and tensions, has reduced the need for an interest rate cut. Even so, the positive effects have yet to show up in either confidence data or in the real economy. The pass-through process may take longer than previously expected–another reason for it to take its time to assess how conditions develop. The most likely scenario for the coming months seems to be no change in interest rates. Further easing in monetary conditions could occur if and when a country asks for financial assistance, thereby triggering the OMT programme. However, should economic conditions deteriorate significantly over the coming months,  the ECB might decide to deliver another interest rate cut."

Yohay Elam - Analyst at Forex Crunch:

Yohay Elam ECB:
"There are many reasons for cutting the rates in the euro-zone: a slower rise in prices, the danger of Germany entering a recession and a potential credit crunch. Nevertheless, Draghi does not seem to be in rush to act just yet. There is a better chance that a 0.25% rate cut will wait for January. A rate cut now would be a small surprise, weighing on the euro. No cut would set the focus on the press conference, where Draghi could make thicker hints about a move in January. In any case, no positive words are expected, and it's hard to see the euro rising in response to the rate decision."

"No change in rates is expected, but an expansion of the QE program cannot be ruled out after one member already voted for it in November. Recent economic data hasn't been too favorable and it seems that Q3 was the (Olympic) exception rather than the norm. The pound seems to enjoy future monetary prospects: a more hawkish policy under Carney. For December's meeting, no change in policy will likely result in no big change in GBP/USD, while more QE could send the pound initially lower, but without a long lasting effect. QE has a much more significant effect in the US than the UK. The decision might be somewhat overshadowed by the Chancellor's Autumn Statement."

Ilian Yotov - FX Strategist and Founder at AllThingsForex:

Ilian Yotov ECB:
"With the euro-zone officially in a double-dip recession after two consecutive quarters of contraction in Q2 and Q3, the question now is how long can the European Central Bank afford to wait until it resorts to additional monetary policy easing, including another rate cut. After putting the ball in the politicians' court with its OMT bond buying program plan, the European Central Bank has managed to buy a few months time. But time may be running out soon as more signs emerge that the EU debt crisis is still far from over and growth is still nowhere to be seen. Even if December ends up not being the month when we see a 25 bps rate cut, ECB policy makers will be likely to face such decision in the first quarter of 2013. As we head into the new year, whether the ECB expands its already inflated balance sheet to buy bonds or announces an additional reduction in the benchmark rate, the euro should feel the pressure, especially if a rate cut makes it an even stronger contender for the title of preferred funding currency."

"Despite the recent better than expected economic data from the U.K., the Bank of England's outlook remains dovish, which has raised the odds of more quantitative easing. Although not very likely to be announced at the December meeting, it would not be surprising to witness a decision to expand to size of the bank's Asset Purchase Program by another 50 billion pounds in the first quarter of 2013, especially if the economy takes a turn for the worse. However, for the time being, the central bank will probably maintain the status quo and will also keep its benchmark interest rate unchanged at 0.50%. As long as the Bank of England continues to sit on the QE sidelines, the GBP should remain as a viable alternative to other currencies whose central banks go full speed ahead with more easing."

Adam Narczewski - Financial Analyst at X-Trade Brokers, XTB:

Adam Narczewski ECB:
"The upcoming ECB monetary policy meeting can be interesting. Mario Draghi mentioned a possible interest rate but will it happen now? That is possible. Although the question is if the ECB will want to make additional moves (after announcing OMT) taking into account that Spain has not applied for financial aid yet. I think this can be blocking Super Mario of making an interest rate cut at this moment. On the other hand, the perspective of lower interest rates in the Eurozone within the next two months, is very credible."

"The Bank of England has made it clear that at this moment will no longer ease monetary policy, as retirement plans are showing worse results due to lower yields (which in turn were caused by stimulating the economy). So companies (employers) need to fund those plans instead of investing that money in capital or other projects. At this moment, the pound  is not discounting further monetary policy easing. Any decision or statement by the BoE that will differ from that view, will make the GBP much more volatile."

Dr. S. Sivaraman - CEO and owner of

Dr. S. Sivaraman ECB:
"On December 06th,12:45 GMT – ECB is expected to announce the minimum bid rate. Current rate is 0.75% and is expected to be the same. There are hints and expectations about further rate cut. But ECB is expected to hold and slowly increase from Feb 2013. Some more improvement in economic conditions may be used as the reason for the same.
On 06th December EURO is expected to hold near high and after a brief dip before the rate decision is expected to rise .Then again after some volatile moves during ECB press conference, EURO may undergo some profit booking moves on the downside."
"On 06th December 12:00 GMT BoE is expected to announce the details of asset purchase facility and official bank rate. Both are expected to be unchanged from the previous decisions.
GBP is expected hold near high before the announcement and after some volatile moves it is expected to rise till end of European session. Later during US session some slide may happen in the name of profit booking move before NFP to be announced the next day."

Alberto Muñoz - Forex Analyst at

Alberto Muñoz ECB:
"Currently I would not expect a new rate cut as pressures on Eurozone are easing up. The spread between German 10-Year and Spanish 10-Year Government Bonds has remarkably reduced and even Spain is not expected to ask for bailout during 2012 so maybe a simple psychological trick (ECB supporting the euro having different mechanisms ready to act) could do the job, not being necessary to cut rates or activate Outright Monetary Transactions."

"Leaving interest rates unchanged as well as not extending Quantitative Easing measures is going to have a positive impact in GBP across the market, not only against USD. Also the designation of Mark Carney as the new governor of the Bank of England will be very positive, as his actions as Bank of Canada's governor were said to have played a major role in helping Canada to weather the crisis. Therefore expect the GBPUSD rate to return to 1.6300 in the next weeks."

Valeria Bednarik - Chief Analyst with

"Although is true ECB President Mario Draghi left open the possibility of an interest rate cut in the months ahead, I don’t believe it will apply such measure in what’s left of the year.  The ECB has done mostly anything possible to help the most troubled countries, Greece and Spain, and Draghi has passed the responsibility to politicians several times over this 2012.  Besides, with current rates at 0.75%, a cut will hardly be significant. I would expect the ECB will remain firmly on hold for the next 2 meetings."

"As usual, inaction from the BOE will not affect Pound in the short term, and that's the most likely scenario. Recent data points for a tough way ahead for recovery in the UK, despite recent news hawkish Mark Carney will become next BOE's president has lifted hopes in the future. My take is that probably not this month, but the BOE will continue to extend its assets purchase program as required by market conditions."
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