A note from Commerzbank on what is expected from the European Central Bank on October 17. TLDR is a 25bp rate cut.
The analysts argue that the primary driver behind the European Central Bank’s (ECB) current stance is the collapse of eurozone inflation expectations. Market participants recognize that this gives the ECB a solid rationale for maintaining loose monetary policy. Commerz say the ECB will have to revise its projected rate path lower.
And, on the euro, they say that subdued inflation supports the euro by slowing the erosion of its domestic purchasing power, but on the other hand, low interest rates remain a negative factor. Overall, though, they conclude that the outlook for the euro appears bleak. The downward revision of inflation expectations heightens the risk of Europe slipping back into a state of ‘lowflation,’ which could compel the ECB to keep interest rates as low as possible without trigger a pick up in inflation.
This article was written by Eamonn Sheridan at www.forexlive.com. Source