Danske Markets believes ECB rate cut increasingly likely

Danske Markets has said that a rate cut by the European Central Bank is more likely following yesterday’s announcement by bank president Mario Draghi that this has been discussed by policymakers at the institution.

For now the ECB rates are expected to remain unchanged, as the bank looks for further evidence of recovery in the eurozone.

But, Frank Øland, senior economist at Danske Bank Markets, has added that the latest sharp fall in numbers for German industrial output suggest that the wider uncertainties in the eurozone, as well as around the US fiscal cliff, are starting to have an impact on investment decisions in Europe’s key economy. Germans have also finally woken up to the fact that the bill for Greece’s latest bailout agreement will largely land at their feet.

The German numbers are very bad news for Denmark, Øland added. It is Denmark’s biggest trading partner, and if German growth falls, then it will become increasingly difficult to get growth in the Danish economy.

The silver lining in the bad news is that it may encourage the ECB to cut rates early next year. A 25 basis points cut would mean the ECB offered negative real rates for the first time in its history.

 

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