ECB to cut its deposit rate by 10bp in March - ABN AMRO

In a recently published article assessing the European Central Bank's monetary policy outlook, "We now expect the ECB to cut its deposit rate by 10bp in March, rather than in December," said ABN AMRO's Head of Financial Markets Research, Nick Kounis, and Senior Economist, Aline Schuiling. "Our base case remains that the central bank will step up net asset purchases to EUR 40bn from April onwards, with the decision also likely at the March Governing Council meeting"
Key quotes
"The case for the ECB to delay the deposit rate cut to March rests on a number of pillars. First of all, the Governing Council may want to have more information about the impact of September’s rate cut given concerns about the adverse impact of more deeply negative interest rates. Second, GDP growth slightly exceeded the ECB’s expectations in Q2, while it may also judge that downside risks related to the trade conflict and a hard Brexit have eased somewhat. Third, it is Christine Lagarde’s first monetary policy meeting as President and she will be leading a divided Governing Council."
"Nevertheless, the case for further monetary stimulus remains strong in our view. At the September Governing Council meeting, the ECB staff published forecasts showing that inflation would be at just 1.5% by the end of 2021, which is not consistent with the price stability goal."
"So the December projection for inflation in 2021 will still show 1.5% – at best. Indeed, recently the European Commission published new forecasts showing it expected inflation to be 1.3% at the end of 2021. The ECB may try to window dress the situation – as it has done in the past – by publishing a more bullish forecast for the following year. Indeed, in December, the ECB will for the first time publish projections for 2022. However, this strategy is losing credibility and this is reflected a disanchoring of various measures of inflation expectations. Finally, we continue to see GDP growth and inflation disappointing current ECB estimates."
Author

Eren Sengezer
FXStreet
As an economist at heart, Eren Sengezer specializes in the assessment of the short-term and long-term impacts of macroeconomic data, central bank policies and political developments on financial assets.

















