Standard Chartered adds: "GDP data, combined with persistently weak business surveys across the region (including Germany), support our view that the European Central Bank (ECB) will cut the refi rate by 25bps in September to address the downside risks to growth, on top of measures to restore confidence in the peripheral debt market (particularly Spain and Italy)."
The banks thinks the deposit rate will stay at 0% in the coming months. "The ECB's staff forecasts, released at the September meeting, are likely to be lowered, another reason to ease policy further."
Key will be the sequence of events in September, says Standard Chartered, "including the discussions about Greece's next tranche payment, the German constitutional court ruling on ESM, expected on 12 September, more details about the ECB's co-ordinated peripheral bond buying programme and the first drafts of 2013 budgets for more insight about the degree of planned fiscal tightening next year."
September's events, as viewed by the bank, "have the potential to damage confidence and dampen activity further."