The ECB monetary policy committee is set to meet on Thursday Sept. 2nd. The group led by Jean-Claude Trichet will discuss interest rates in the euro area and the recovery. The sentiment around the markets seems to be that the global recovery is going to be decoupled. Countries and areas will rebound at different speeds, BRICs, emerging economies, and industrialized countries is the current order. Amongst the latter group and under the light of the latest economic data, Europe is likely to be a step ahead of the U.S. And Japan in the healing process. Depending on the committee's take on these issues they will provide an answer to the question of how long the ECB is going to keep historically low rates and pumping fresh currency into the economy. FXstreet.com consulted these experts and analysts' opinion about the ECB MPC meeting result. The widespread consensus points to the European Central Bank leaving rates intact and maintaining valves open to feed the necessary funding to banks around the union not yet ready to be self-sufficient.
- Dr.S.Sivaraman - CEO and owner of i-knowindices.com
"There may not be any change in the interest rate and no tightening could happen. I am not expecting any change in easing front, rather they could signal to tighten soon. The language could be hawkish with some optimistic comments on economy.
This time around ECB decision comes by first week and BOE interest rate announcement could come during second week – so more speculative moves could happen in the market when the events are spread over rather than clustered on single day.
The expected market moves before and after the event – Quick rise in EURO and GBP during early European session and a drop before ECB rate decision and then quick rise after ECB press meet followed by upward spike during US session are the expected market moves." - Ed Ponsi - President of FXEducator LLC:
"There will be no change on interest rates at the ECB meeting, but all eyes are on other forms of easing. For example, euro zone banks have been borrowing funds from the ECB at very low rates, in operations called "tenders", and these are set to expire. I believe the ECB will announce that they are extending these tenders, as now it is clear that it is too soon to wean these banks off of these funds. Trichet had mentioned earlier that he would monitor the situation, and I believe he sees that the banks are not ready to stand on their own - despite the fact that only 7 European banks failed the so-called "stress test".RELATED:
• ECB preview: Taking a pause on the exit path by Danske Bank A/S
• ECB preview: Liquidity support still needed by UniCredit Group - Yohay Elam - Analyst Forex Crunch:
"I believe that Jean-Claude Trichet and his colleagues will stick to the 1% rate once again and not present any significant new measures. While inflation already rose and the second quarter was great in many Euro-zone countries, the prospects for the near future are still dire. So, my forecast is for a more concerned tone, but no surprising steps."
- Triffany Hammond - Founder of TrifFX:
"Recent decreases in Retail Sales as well as Wholesale and Producer prices indicate that the ECB is facing some deflationary pressures that may sway the conversation toward continuation of the quantitative easing measures rather than moving away from them. When you couple that with the fact that many of the Union's struggling economies have run out of lenders and are relying almost exclusively on the ECB for money supply it may be a very long time before the E.U. can reasonably tighten money policy. I expect that rates will stay the same, for the time being, as a result." - Ilian Yotov - FX Strategist and Founder at AllThingsForex:
"In the midst of a global slowdown and with the sovereign debt problems in the Euro-zone not completely resolved yet, the European Central Bank would not be in a position to raise rates until next year. It is likely that the ECB monetary policy will remain accommodative. Especially interesting at the next ECB meeting will be to see if policy makers would follow the footsteps of the Fed and the Bank of Japan and consider additional monetary stimulus. Should the ECB engage in further quantitative easing, the EUR could suffer the consequences."
- Adam Narczewski - Financial analyst at X-Trade Brokers, XTB:
"As for today, the Eurozone economy is in better condition than the U.S. Better than expected news from Germany (GDP growth) give a breather to the ECB but at the same time the actions of other central banks, mainly the Fed and the Bank of Japan, do not give much room for monetary policy changes in the Eurozone. The ECB will keep interest rates unchanged at 1% and will not change the tone of its monetary policy statement. The central bank cannot afford to tighten its monetary policy right now, since this will cause the Euro to appreciate too much killing the Eurozone’s export."
- Layalee Ramahi - Strategic Manager ecPulse.com:
"The ECB is likely to maintain its currently monetary policy stance at their September meeting. The bank is not in a hurry to alter its policy and accordingly we expect rates to remain intact at 1.0% and even if the bank intends to signal a coming more for the market their choice will be on the lending or deposit facility just still too early this month likely in the fourth quarter. I expect Trichet to lead the ECB into a more conservative and prudent rhetoric this month after the upbeat comments last meeting on the ongoing recovery. Trichet will cite developments and eased market strains yet will not withdraw the bond purchases amid the high uncertainty over the outlook and gloomy data from major economies; though he would likely signal that the market dependency on the auctions is slimming in a signal for moving to trim them. Therefore, we expect steady rates and a conservative prudent rhetoric to be adopted by the ECB."
- Anna Coulling - Owner trader at Master The Markets:
"Axel Weber, president of Germany's Bundesbank, has already nailed his colours to the quantitative easing mast with his forthright comments that the ECB should continue to provide unlimited liquidity until at least the start of 2011. The present arrangement is that the ECB will continue to offer unlimited weekly and monthly liquidity until early October. Given the parlous state of most EU economies Weber's colleagues are likely to agree with his views thereby making next week's ECB meeting a bit of a damp squib. With regard to interest rates these should remain at 1%, despite next month's likely revision upwards of the growth figures which, in any case, have been distorted by the 2.2% rise in German GDP."
- Jeremy Cook - Chief Economist & Corporate Foreign Exchange at World First UK Ltd
While Q2 GDP figures in Germany were particularly strong, the periphery of the EU are still showing real signs of weakness. In order to increase spending and business development in these regions we would expect to see the Bank offer unlimited liuquidity on a 3-month term at the repo rate until the end of the year. They will also hold the main refinancing rate at 1%.
