Wall Street’s eyes will be on Frankfurt on Thursday. The reason: the European Central Bank is meeting, and Wall Street is hoping it delivers on its promises to inject fresh stimulus into the ailing eurozone economy and spark a much-needed rise in dangerously low inflation.
The annual rate of inflation now stands at minus 0.2% - even further below the bank's target of just under 2%.
“The ECB is widely expected to announce additional easing Thursday morning as inflation fell back into negative territory in February,” Mary Catherine Sinclair of Strategas Research Partners told clients in a report.
The ECB disappointed investors at its last meeting, when it didn’t deliver quite the dose of stimulus Wall Street was hoping for.
The Mario Draghi-led ECB is fighting a war with deflationary forces. To combat that financial scourge, the ECB is expected to cut interest rates for deposits — currently at -0.3% — even further into negative territory. The ECB is also expected to extend and expand its bond-buying program.
Wall Street is forecasting an additional 0.1% cut in the deposit rate, as well as boosting its monthly bond-buying program by another 10 billion euros to bring it to 70 billion euros a month. Some on Wall Street say the ECB might — and could — do more.
“While December’s under-deliverance highlights the risk of another disappointment, the deteriorating economic outlook should persuade the ECB to be bolder this time,” Jonathan Loynes of Capital Economics wrote in a note.
However, Jens Weidmann, the head of the German national central bank and a governing council member, has been a leading voice warning that excessive central bank stimulus risks taking the pressure off national governments to do their part to make the eurozone economy work better. Governments are asked, among other things, to reduce bureaucracy and regulation to make it easier to start and grow businesses.
Reference: USA Today, The Washington Post
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