(When) Will the ECB Cut Rates?
Although the Federal Reserve has cut rates by 225 basis points since September, the European Central Bank (ECB) has kept its main policy rate unchanged at 4.00% since last tightening policy in June. Although the fallout from the subprime mortgage debacle is dimming the outlook for growth and leading to volatility in most financial markets, ECB policymakers have maintained that the primary risk to the Euro-zone outlook is inflation rather than sub-par growth. As Exhibit 1 makes clear, CPI
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ECB: Moving closer - but not there yet!
We are moving towards our first expected ECB cut. We now expect a cut at the June meeting followed by additional easing of monetary policy in September and December. This will take the refi rate from the present 4% to 3.25% in 12 monthsÂ’ time. Weaker Euroland data, a worsening of the outlook for the US economy, increasing risks and the surprisingly soft tone from the ECB are the main reasons behind our altered view. Strong forces point in opposite directions and it will take some time to sway
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