ECB: More Uncertain

Posted May 3, 2012 by CLeahey

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• Surprising no-one, the ECB Council kept policy on hold for a fifth successive month, retaining the high-profile refi rate at 1.00% and the deposit rate at 0.25%. Notably, President Draghi used the Q&A session to reveal that the Council had not discussed any fresh cut in official interest rates, instead highlighting that policy was accommodative and that any exit strategy would be premature.
• The latest comments from the ECB are clearly no pointer to a rate cut around the corner, let alone as soon as the next meeting on June 6. Very clearly, the ECB has been surprised by the negative messages from the data is received over the last month, but not enough to be convincingly swayed that a recovery will not eventually manifest itself.
• DE View:  However, the ECB remains overly-optimistic.  The ECB hopes regarding the monetary backdrop are unlikely to translate into either a recovery in the demand or supply of lending, all implying that while the recession may not get any deeper, there is no end in sight.
• DE Outlook: A rate cut next month is possible, albeit with less momentum forthcoming from the ECB in this regard than expected.  Nevertheless, continued soft data surely imply that further stimulus, probably involving up to 50 bps in formal rate cuts may be seen over summer.

ECB May 3[/private]