FXStreet (Guatemala) – Analysts at ING explained that the main worry for the ECB remains stubbornly low inflation, with Frankfurt now increasingly focusing on core inflation.
Key Quotes:
“In that regard, the fall in core inflation to 0.9% YoY in November (from 1.1% in October) was indeed a reason to undertake more monetary stimulus. ECB staff downgraded its inflation forecasts to 1.0% in 2016 and 1.7% in 2017. That said, we believe core inflation is likely to pick up gradually on the back of a somewhat brighter labour market outlook. Headline inflation is also to come out somewhat higher in the second half of 2016 since we don’t believe that the current oil price level is sustainable.
In that regard the ECB was and still is finding itself in a difficult balancing act. Apparently, the Governing Council still wanted to follow up on the expectations that had been created, but had also become hesitant to go beyond market expectations and might even have started to doubt Draghi’s rather gloomy outlook from October.
We now believe the ECB is unlikely to lower interest rates any further. Indeed, the bank was already worrying that too negative a deposit rate might hurt commercial banks’ interest margins, thereby inciting them to increase credit margins.”
Analysts at ING explained that the main worry for the ECB remains stubbornly low inflation, with Frankfurt now increasingly focusing on core inflation.
(Market News Provided by FXstreet)