Ernst & Young said it expects the ECB will tone down its “hawkish stance” at its meeting today and signal that rates will remain on hold at 1.5% for at least a few months.
Many analysts said the ECB is unlikely to signal any cut in rates at the moment, but Ernst & Young& said there is a risk that the eurozone will fall back into recession and if this is the case, the ECB should then consider cutting rates to below 1%.
Senior economic advisor with Ernst & Young, Marie Diron said: “We expect that the governing council will tone down its hawkish stance and signal that rates will remain on hold at 1.5% for at least the next few months. However, the ECB is unlikely to signal any cut in rates at this point. Instead, it is likely to communicate its change of view gradually, by no longer referring to balanced risks to growth and upside risks to inflation.”
“We think that economic developments have moved far away from that description and see a significant risk of recession in the eurozone. We hope that should eurozone activity start falling again, the ECB will be quick to respond with rate cuts. We would recommend cuts beyond the 1% floor that the ECB had set itself in 2008 to 2009.
“Indeed, while in 2008, governments helped buffer the impact of the crisis with large fiscal stimuli, this time around, the ECB is the only policymaking institution with any room to manoeuvre. It should use it to the full. But there is a risk that, due to divisions within the governing council, the ECB will not take such steps.”
CEO of the Irish Brokers Association, Ciaran Phelan, said that with interest rates expected to remain unchanged, many are hoping the ECB may indicate a reversal of the previous two increases, given that the economic crisis shows little signs of abating.
“This will be welcome news for all mortgage holders but particularly those on tracker mortgages as the banks will be forced to pass on any reductions as and when they occur.” he said.