That’s a chart (click to enlarge) from Deutsche’s George Saravelos, who unsurprisingly argues a refi-rate cut by the ECB on Thursday will be fairly insignificant — but that the risk of disinflation in the eurozone, and how the ECB responds to this threat to ‘ze price stability’ matters:
The risks around the ECB primary mandate will likely return front and centre however, making the last two years a poor blueprint for judging how the ECB reacts.
As the chart above-right shows, the ECB’s primary mandate has fallen somewhat out of focus in recent years but that is likely to change in response to falling inflation (so charted below by Capital Economics).
The HICP inflation sat at 1.2 per cent in April, from 1.7 per cent in March, with the ECB supposed to keep it “below but close to 2 per cent”:
Gavyn Davies has already charted the ECB’s options — and suggested that the most likely move, after a refi cut and some chatter about SME loans and securitisiation, is for the ECB to follow the Fed and give explicit forward guidance on how long it intends to hold interest rates effectively at zero, probably subject to some form of inflation threshold. So we’ll leave it there ahead of the decision.
We’ve also put an excellent eurozone chart book sent through by BNP Paribas’ Ricardo Santos in the usual place.
Related link:
A few good central bankers – FT Alphaville
All eyes on ECB as markets expect rate cut – FT