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Eco Focus - Edition January 13, 2012
ECB in easing, albeit data-dependent mode
The ECB left its policy rates unchanged at today's meeting. The official statement still reflects an easing bias, in our view, although "substantial downside risks" are to be balanced with "tentative signs" of stabilisation in the economy. The near-term outlook for ECB rates will prove to be highly data-dependent. We still look for the ECB to ease further this year, but the pain threshold has likely edged higher and we now forecast a 25bp rate cut in March only, followed by another 25bp move in Q2, bringing the Refi rate to 0.50%.
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Content:
- What has changed since December? - The case remains for further rate cuts to 0.50%, but the probability has decreased |
Extract - Medium-term inflationary pressures starting to recede
Eurozone HICP inflation declined to 2.8% YoY in December (from 3.0% in the previous two months) but the near-term outlook likely remains subject to upside risks due to sticky energy inflation. With oil prices rising and the currency weakening, wholesale petrol prices in EUR terms have jumped by 14% since mid-December. Moreover, fiscal austerity can also add to upside risk to consumer prices in the near-term in those countries where indirect taxes are to be hiked this year.
The ECB is focusing on the medium-term outlook for inflation, however, and we look for the staff forecasts to continue to show 2013 inflation projections below 2%. The main reason for that would be the factors mentioned in the previous section, including the dampening effect of the recession and the credit squeeze on wages and prices, with the possible exception of some core countries like Germany. |
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