European Central Bank President Mario Draghi and his colleagues will cut their deposit rate at least 10 basis points on Thursday, if market expectations are right. Anticipation for a move has built over the past three months as stocks gyrated, crude oil slumped, and inflation expectations fell. Here’s a timeline:
At the beginning of the year, market pricing implied about a 50 percent probability that rates would drop below minus 0.3 percent in March. Chances of a move climbed around the January ECB meeting, especially as Draghi pledged during follow-up speeches that policy makers have “no limits” on how far they’re willing to deploy measures within their mandate.
By mid-February, at the same time as stocks staged an even steeper decline, virtually all market participants decided a rate increase was imminent. Inflation has shown no signs of materializing since, reinforcing that expectation.
“It was really Draghi’s comments, and the further drop in inflation — and we also had a drop in core inflation — which I think made a lot of economists and analysts turn around and say the ECB had to act,” said Carsten Brzeski, chief economist at ING-Diba AG in Frankfurt, adding that poor consumer confidence readings probably helped to cement expectations. “That’s probably why we have a fully-priced, 100 percent consensus view that the ECB will act.”
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(For more economic analysis, see Benchmark)
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