ECB ‘to keep rates but may move in June’

FRANKFURT - Agence France-Presse

European Central Bank head Mario Draghi said last month monetary easing may be on the cards, but analysts don’t expect an interest cut in the next meeting.

The European Central Bank is not expected to cut interest rates this week, but could start paving the way for a possible move in June if deflationary dangers persist, analysts said.    
   
The ECB has held eurozone borrowing costs at their current all-time low of 0.25 percent since November.

Last month, the bank’s president Mario Draghi insisted that “we do not exclude further monetary policy easing and we firmly reiterate that we continue to expect the key ECB interest rates to remain at present or lower levels for an extended period of time.”

Nevertheless, no monetary easing appears to be on the cards at the bank’s next meeting on May 8 – this time being held in Brussels – central bank watchers said.         At the moment, deflation is
perceived to be the biggest threat to the eurozone’s economic
recovery.

Deflation is a general decline in prices and can be highly damaging if consumers, expecting prices to fall further, hold off purchases.     

Last month, area-wide inflation picked up slightly, but still fell short of forecasts and was way below the ECB’s target of just below 2.0 percent.         

Consumer price inflation rose to a 0.7 percent rate in April, up from the 0.5 percent in March, which was the lowest since October 2009.

UniCredit analyst Marco Valli said that inflation had come in below ECB expectations for the past two months. “But the extent of this weakness and its composition -- mostly skewed towards non-core components -- is unlikely to trigger central bank action in May,” Valli said.

Still, action “appears more likely than not” in June, the expert continued.         

The ECB is scheduled to publish its latest economic forecasts on May 8 and it may be compelled to downgrade its inflation forecasts.