Forex Flash: Eurozone debt markets ease – ING

Share | (Barcelona) - According to a flash estimate by Eurostat, Eurozone inflation remained unchanged at 2.2% in December, the same rate as in November, which was the lowest since December 2010. A further decline in energy price inflation (from 5.7% to 5.2%) was offset by an increase in the food, alcohol inflation (from 3.0% to 3.1%) and a slight pickup in the core rate (from 1.4% to 1.5%).

Looking ahead, however, Eurozone inflation is expected to resume its gradual descent. "Indeed, with energy price inflation set to fall further (as previous sharp increases drop out of the annual comparison), and core inflation remaining low, we expect overall inflation to drop well below 2% around the middle of this year. What is more, the bleak growth outlook for the region suggests that underlying inflationary pressures are likely to remain muted for quite some time thereafter." writes Martin Van Vilet, at ING.

This gives the ECB scope to further ease its interest-rate stance. However, many governing council members seem very reluctant to cut interest rates further, also given the potential unintended consequences from taking the deposit rate into negative territory. "This means that, for now, with tensions on Eurozone debt markets easing and global growth momentum seemingly picking up, the ECB will likely maintain its wait-and-see stance on interest rates. However, if a recovery fails to materialize, the ECB might still be forced into further action." he warns.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Forex and Currencies

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