No change in monetary policy is predicted from the ECB next Thursday, but lift-off on the first interest-rate hike for years is predicted in just 11 months’ time, for September next year.
It will end its negative interest-rate policy in January, 2020, and start paying for deposits eight months after that, with the deposit rate climbing to 0.25%, from minus 0.4% currently, by the end of 2020, according to the Bloomberg survey of economists. The survey will again raise concerns in Ireland, where households carry some of the largest debt burdens in Europe.
This month, policymakers took a big step toward scaling back unprecedented stimulus, reducing monthly asset purchases to €15bn. With the programme set to be capped at €2.6 trillion at year-end, interest rates have moved back to the centre of attention.
While the ECB doesn’t plan to tighten borrowing costs until at least after next summer, some officials have publicly discussed strategies to communicate their intentions — not just with regard to the first rate step, but also the subsequent pace of increases.
In forecasting the path of interest rates, economists have to weigh a wide range of risks. Italy’s budget crisis has jumped to the top of the list of concerns.
“The political situation in Italy is by far the biggest risk for the eurozone economy, but it’s not clear what the ECB can do about it,” said Azad Zangana, an economist at Schroder Investment Management. Analysts also see trade tensions clouding the outlook, even though the eurozone isn’t directly affected by the spat between the US and China.
- Bloomberg; Additional reporting, Irish Examiner