The European Central Bank is set to unveil its second stimulus cocktail in three months on Thursday, spurred by fears that low energy costs are feeding into wages and prices, potentially perpetuating ultra-low inflation.
The euro zone's central bank is widely expected to cut its deposit rate deeper into negative territory and adjust its 1.5 trillion euro asset-buying scheme, hoping to boost prices after inflation dipped back into negative territory last month.
The ECB has little to show for the 700 billion euros ($1.066 trillion) it has spent buying government bonds and other assets in the past year, as tumbling raw materials prices blunt the impact of its quantitative easing. That raises the risk that people will lose faith in the bank's commitment to its mandate, dragging down long-term price expectations.
Inflation has been below the ECB's nearly 2% target for three years and is likely to remain so for many more.
"The stakes are high at (Thursday's) ECB policy meeting, given the disappointment in December and the fundamental questions now being asked about the efficacy and limits of monetary policy," JPMorgan economist Greg Fuzesi said. "Crucially, it is no longer just a small minority of ECB governors who regard the remaining policy tools as problematic. Markets have also raised some concerns," Mr Fuzesi added.
"This makes it harder for (ECB President Mario) Draghi to regain the kudos he lost in December by simply delivering a big package."
Mr Draghi has already said that acting too soon is better than acting too late, and that the rate meeting needs to recognise that the outlook for growth and inflation have deteriorated.
But with policy already deep in unconventional territory, the ECB has few big guns left and most remaining options risk either negative side effects or potential legal challenges, suggesting the Governing Council will opt for a package of modest measures.
Click Here To Register For Free Trial Services OR Give A Missed Call : +6531581402 Follow Us On Twitter : www.twitter.com/epicresearchsg Like Us On Facebook : www.facebook.com/EpicResearchSingapore Need Any Assistance Feel Free To Mail Us at : info@epicresearch.sg
The euro zone's central bank is widely expected to cut its deposit rate deeper into negative territory and adjust its 1.5 trillion euro asset-buying scheme, hoping to boost prices after inflation dipped back into negative territory last month.
The ECB has little to show for the 700 billion euros ($1.066 trillion) it has spent buying government bonds and other assets in the past year, as tumbling raw materials prices blunt the impact of its quantitative easing. That raises the risk that people will lose faith in the bank's commitment to its mandate, dragging down long-term price expectations.
Inflation has been below the ECB's nearly 2% target for three years and is likely to remain so for many more.
"The stakes are high at (Thursday's) ECB policy meeting, given the disappointment in December and the fundamental questions now being asked about the efficacy and limits of monetary policy," JPMorgan economist Greg Fuzesi said. "Crucially, it is no longer just a small minority of ECB governors who regard the remaining policy tools as problematic. Markets have also raised some concerns," Mr Fuzesi added.
"This makes it harder for (ECB President Mario) Draghi to regain the kudos he lost in December by simply delivering a big package."
Mr Draghi has already said that acting too soon is better than acting too late, and that the rate meeting needs to recognise that the outlook for growth and inflation have deteriorated.
But with policy already deep in unconventional territory, the ECB has few big guns left and most remaining options risk either negative side effects or potential legal challenges, suggesting the Governing Council will opt for a package of modest measures.
Click Here To Register For Free Trial Services OR Give A Missed Call : +6531581402 Follow Us On Twitter : www.twitter.com/epicresearchsg Like Us On Facebook : www.facebook.com/EpicResearchSingapore Need Any Assistance Feel Free To Mail Us at : info@epicresearch.sg
No comments:
Post a Comment