(MENAFN-Khaleej Times) the european central bank (ecb) is not expected to cut its key interest rates this week even though inflation in the euro area continues to slow analysts said
The ecb has held eurozone borrowing costs at their current all-time lows since november.
But no further monetary easing appears to be on the cards at the bank’s next meeting on thursday just yet given recent data suggesting the region’s economy is in a tentative recovery central bank watchers said.
At the moment deflation is perceived to be the biggest threat to that recovery.
Last month area-wide consumer prices edged up by just 0.8 per cent way below the ecb’s target of just below two per cent with some observers warning of a destructive spiral of deflation.
Deflation is a general decline in prices and can be highly damaging if consumers expecting prices to fall further hold off purchases.
March inflation data for the entire eurozone are not scheduled to be released until monday.
But data on friday showed that inflation in germany the region’s biggest economy slowed to just one per cent this month the lowest level in nearly four years.
Ecb officials have repeatedly said they see no threat of deflation but president mario draghi reiterated last week that the central bank stood ready to act if necessary.
“if any downside risks to (our inflation) scenario appear we stand ready to take additional monetary policy measures that ensure our mandate is fulfilled” draghi told a conference in paris.
“in other words we will do what is needed to maintain price stability” draghi insisted.
Elsewhere slovak central bank chief and ecb governing council member josef makuch also said the bank was “ready to adopt non-standard measures to prevent slipping into a deflationary environment. the ecb has many measures on hand.”
In addition to cutting its interest rates the ecb could ease monetary conditions by pumping money into the system or buy up government bonds to bring down borrowing costs.
Nevertheless analysts believe the ecb’s hand will not be forced just yet.
Ing diba economist carsten brzeski acknowledged that the drop in german inflation was a headache for the ecb.
But he suggested the trough in german headline inflation might now have been reached this year.
Key will be the new inflation data for the eurozone as a whole he said.
“we don’t think that the ecb will react to a single data release but monday’s eurozone inflation data could tip the balance in a governing council which does not seem to have made up its mind yet” brzeski said.
“at the current juncture we still think that the ecb’s preferred next policy option is to do nothing. the most likely outcome of next week’s ecb meeting is that the ecb will continue talking the talk in order not to have to walk the walk” brzeski said.
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