Posted December 03, 2015 Calin Basno
The past months in the Eurozone have had a grim look overall as Portugal stalled, Germany slowed and Greece has contracted under its debt payments. Growth has been below expectations, and falling in comparison to early 2015. The slow pace of growth and the weak inflation numbers are putting pressure on the ECB to step on the gas pedal. What do the numbers tell us about the upcoming monetary policy meeting to be held on the 3rd of December in Frankfurt?
For a complete picture of the state of the economy, we must look at the past changes made to the Eurozone’s monetary policy. In September 2014, Mario Draghi announced the most recent cut of the deposit rate to negative 0.2%. In that instance, he declared that they had reached the ‘Lower bound’, meaning that they would not be decreasing it further. Since then, low inflation has prevailed in the Eurozone, the last release being made on the 2nd of December, at 0.1%. This data, alongside the discussions in the October meeting when a further rate cut was brought up, has consolidated analysts’ belief that Mario Draghi will announce a further easing of monetary policy. Most analysts believe that they will ease the policy even further, however, there are some disagreements on how aggressive the measures taken will be.
The three measures disputed are the pace of the monthly QE, the length of the programme and the deposit rate and all are expected to be addressed at the meeting. Currently, the 60 billion euro’s per month quantitative easing programme is set to end in September 2016. Polls show that economists expect an increase of €15 billion/month in the pace of QE. Citigroup analysts believe that this programme will be extended till March 2017 at an increased pace of €75 billion/month alongside a further deposit rate cut to -0.4%. Barclays bank analysts expect a 0.1% rate cut to -0.3%. Currently the market is pricing in a deposit rate cut of 14 basis points, which is in line with most predictions.