The European Central Bank will ease policy next week in some way or another, according to economists polled by Reuters.
Speculation of further stimulus from the ECB has mounted ever since president Mario Draghi indicated in October that the Governing Council would act if needed to drive up inflation to its two per cent target.
The ECB will next decide policy on December 3, less than two weeks before a Federal Reserve meeting in which the US central bank is widely expected to raise rates from zero for the first time in nearly a decade.
The likely outcome of both meetings has already been priced in by financial markets, which is why the euro has weakened over six percent against the US dollar since Draghi’s comments last month.
Inflation, meanwhile, rose to 0.1 per cent last month and a core measure is showing signs of strengthening over the past few months.
Nonetheless, a poll of over 50 economists taken this week showed forecasters predict an 80 per cent probability of the ECB announcing further easing.
“It [the ECB] cannot run the risk of disappointing markets, having raised expectations of action. Action in some form or other looks like a racing certainty; it’s merely a question of the form it takes,” said Ken Wattret at BNP Paribas in London.
The consensus from the poll is that the ECB will cut the deposit rate further to -0.30 per cent from -0.20 per cent now.
Forecasters also expect the ECB to increase the amount of bonds it buys each month to €75 billion from the current €60 billion.
Reuters exclusively reported that ECB officials were considering options such as staggering charges on banks hoarding cash or to buy additional types of debt. Not everyone, even within the ECB, agrees over the effectiveness of monetary policy though.
On Monday, Sabine Lautenschlaeger, a German member of the core team that sets ECB policy said ever-looser monetary policy had its limits and predicted a diminishing impact of future money printing.
She is not alone. Criticism has come from other quarters in Germany over the past couple of weeks, including from the finance ministry, a panel of economic advisers known as the ‘wisemen’ and the head of the Bundesbank.
Indeed, so far the stimulus has had limited effect.
Inflation has dipped below zero a couple of times since last December owing to low energy prices and weak demand, economic growth has largely stuck to its lacklustre pace while the unemployment rate has remained over 10 per cent.
In contrast, unemployment in the US and Britain has dipped to half that rate, close to a level that policymakers associate with full employment.
A majority, 36 of 46 economists in poll, said the ECB’s monetary policy has been effective in improving lending to businesses – echoing Draghi’s view. While those claims are supported by the fact that eurozone business lending has stopped contracting, latest official data showed growth in loans to corporations slowed almost to a halt.