1157 GMT October 22, 2019
President Mario Draghi said last month that he’s ready to add stimulus if the economic outlook doesn’t improve, Bloomberg reported.
With data mixed since then, most economists tracked by Bloomberg say the Governing Council will change its policy language on July 25 to show that rates could be cut, and then act at the following session after the summer break.
Economists expect the ECB’s deposit rate to be reduced by 10 basis points to a record-low minus 0.5 percent in September, while some banks including UBS, HSBC and Nomura predict a second cut of the same magnitude in December.
Commerzbank sees a 20 basis-point cut already in July. The most significant change from a Bloomberg survey conducted three weeks ago is that more than half now see the ECB restarting net asset purchases.
The comeback of unconventional measures would be a profound shift from late last year when officials were preparing to wind down monetary support. Now the momentum is faltering amid global trade tensions and Draghi, who steps down in October, is making a final push to put eurozone growth and inflation back on track.
In a related move, ECB staff have started analyzing the ECB’s policy strategy including a potential revamp of their inflation goal, according to officials familiar with the matter, in a move that could embolden policy makers to pursue monetary stimulus for longer.
While ECB officials have pledged to make greater use of their toolbox if needed, they’ve also amplified their calls for governments to play a larger role in safeguarding the economy through fiscal policy, in an acknowledgment that the central bank may be approaching the limits of what it can do.
The deposit rate has been below zero for more than five years, and officials have spent more than €2.6 trillion ($2.9 trillion) on debt purchases to stimulate demand and revive inflation.
In the near term, economists expect that if asset purchases are restarted, they will likely commence in January 2020 at a monthly pace of €40 billion for one year, according to median estimates in Bloomberg’s collection of forecasts.
“The ECB needs to come big to shock markets; failure to deliver will leave markets disappointed,” said Piet Christiansen, senior euro-area analyst at Danske Bank.
“We have trust in the ECB delivering.”