Photo: Zechariah Judy on Flickr
With hopes about that EU summit last week deflating amid talk of a Greek referendum, focus is turning back to whether the eurozone economy is going to be able to hold out amid a slew of bad signs.And that’s where Mario Draghi and the European Central Bank come in.
Investors have been speculating for months now about when the ECB will finally give in and cut rates. This could finally be that moment.
The escalating debt crisis is doing a number on the eurozone economy — and no longer just in the periphery. German manufacturing and employment are finally taking a hit from dismal euro area economic conditions, and French, Spanish, and Italian economies have already been turning sour.
More accommodative monetary policy could stem the tide of a contraction. The ECB has kept rates at 1.5% for months.
On the other hand, inflation is still higher than the ECB’s target at 3.0% in September. The ECB has been particularly committed to price stability, the bank’s sole mandate, and the Italian Draghi won’t want to compromise that in his first decision as head of the ECB.
Consensus remains skewed slightly towards holding rates flat but strongly hinting at a cut of as much as 50bps in December. Expectations of a cut tomorrow, however, seem to be gaining ground.
We’ll cover that rate decision right here on Money Game when it’s published at 8:45 AM EST. Draghi will then give his first press conference at the helm of the ECB from Frankfurt at 9:30 AM EST.