The European Central Bank is set to release its interest rate
decision next week on Thursday, May 2. However, economists are
already talking about a potential rate cut.
No less than 10 banks have released notes in the past 24 hours
calling for a rate cut, following the weaker than expected German
IFO Business confidence survey and PMI release over the past two
Over the weekend, ECB Governing Council member and Austrian
central banker Ewald Nowotny said in response to a question asking
about an imminent rate cut, "It's still too early. In Europe, we
have very expansionary monetary policy and it is too early to judge
if further steps should be taken."
However, these comments were made before the latest round of
data pointed to a continued slowdown in Europe, specifically so in
the continent's economic growth engine, Germany. Now, with the
latest round of data pointing to weakness in the core of Europe and
not just the periphery, economists expect conservative German board
member and Bundesbank Chief Jens Weidmann to cave and accept a rate
Other board members voiced their opinions recently as well, and
these most recent comments point to a rate cut. ECB President
Draghi said over the weekend that there has not been any indication
of a pick-up in growth after earlier in April hinting that a rate
cut could happen in May. Further, board member Jörg Asmussen said
that the ECB could lower rates if the data were weak enough to
warrant such action.
Here is a list of what the experts expect next Thursday:
Morgan Stanley sees a 25 basis point cut in the benchmark rate and
a 50 basis point cut to the Marginal Lending Rate (
) by the June meeting. Credit Suisse sees a 25 basis point cut next
week in the benchmark rate. RBS sees a 25 basis point cut to the
benchmark rate next week. UBS sees a 25 basis point cut to the
benchmark rate as well as a 50 basis point cut to the MLR next
week. Bank of America Merrill Lynch does not see a cut in May but
believes that the probability of such action has increased over the
past week. J.P. Morgan sees a 25 basis point to the benchmark rate
next week. Barclays sees a 25 basis point cut to the benchmark rate
next week. Commerzbank sees a 25 basis point cut next week
following the weak PMI data this week. Nomura sees a 25 basis point
cut to the benchmark rate next week. Deutsche Bank sees a 25 basis
point cut to the benchmark rate next week. Bill Gross of PIMCO says
that the ECB will cut soon but a weaker euro is the only solution
to helping the eurozone, via PIMCO's twitter account.
Swaps markets are less impressed. Currency traders know that the
probability of a rate cut can be extrapolated from the OIS swaps
market, however the market is only pricing in approximately a 0.2
percent chance of a rate cut. However, this is subject to change
over the next week and should this probability increase, it could
signal that the market is beginning to price in such action.
The euro traded near flat against the dollar in early US trade
after trading slightly higher throughout the morning. The single
currency saw greater weakness against the pound and the Australian
dollar and was also weak against the yen.
(c) 2013 Benzinga.com. Benzinga does not provide investment
advice. All rights reserved.
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