FXstreet.com (Barcelona) - As recent data has continuously
portrayed over the previous quarter, the 17-country Eurozone is in
recession, however trends support the view of stabilization, while
ECB President Mario Draghi could strike a slightly more positive
tone in the news conference that follows the rate decision today at
Preliminary feedback from the Draghi camp points to no price
action, as "Rates are definitely on hold - nothing has been
spectacular enough in recent data to force the ECB to any action."
writes Deutsche Bank economist Gilles Moec. "There is a recession,
but no further deterioration. Lending is weak, but also not
deteriorating further, so the ECB is not compelled to act."
In light of this rather inert prospective however, the 23-man
Governing Council will find some comfort from improving business
morale as well as a survey of purchasing managers, which gave
tentative signs that the worst of the downturn may already be in
the rearview mirror.
"Since the December meeting key figures have generally surprised on
the upside." stated Nordea analyst Anders Svendsen in an open note
to investors. While the ECB had, in Draghi's words, partaken in "a
wide discussion" on reducing rates last month, the grounds for such
a move have not gained traction and Executive Board members have
lobbied staunchly against such a cut.
Indeed, another cut of the refinancing rate would raise the
question of whether the ECB would also lower its deposit rate -
currently set at zero - by the same amount, which would push it
into negative territory, essentially charging a fee, for the first
time since the ECB's inception. Even though Draghi has said the
bank was "operationally ready" for such a step, it has grown
increasingly reticent of the idea over the past couple of months, a
source with knowledge of the ECB's thinking said.
The market ramifications of such a move could prove quite deep, as
negative deposit rates could deal a hefty blow to money market
funds in particular, which have already seen cash outflows since
the ECB cut the deposit rate to zero in July. The rate is a peg for
short-dated money market rates and at zero it is already almost
impossible for funds to generate a return for their investors.
As for a more immediate finality, the ECB meeting will certainly
set the direction in the FX markets today. According to Arne
Lohmann Rasmussen, an analyst at Danske Bank, "We expect no rate
change from the ECB, however if there is a rate cut, the euro might
come under severe pressure given the market moves over the past
couple of months and the speculative positioning in the