Photo: Artnow314, Flickr
Don’t get your hopes up for the European Central Bank to slash interest rates tomorrow.A note out this morning from Morgan Stanley explains why this is unlikely to happen, although waxes optimistic about seeing the bank hint at a rate cut in November.
Here are three reasons why:
– Broad consensus for a cut does not seem to exist among members. While some have not ruled out a cut, others appear more hawkish.
– favourable German business data, M3 and loan growth, and above-expectations CPI statistics mean the ECB will be wary to cut rates immediately.
– The ECB would signal policy continuity if the outgoing President Jean-Claude Trichet hinted at a future rate cut and incoming President Mario Draghi carried it out next month.
Nonetheless, the report expects Trichet to talk about downside risks to price stability, and notes the possibility we’ll see a reopening of the bank’s covered bond purchase program.