ECB ‘will refrain from rate cut’
The ECB will leave its main refinancing rate at a record-low 0.5% until the end of 2014, according to the median of 18 forecasts in the monthly Bloomberg survey of economists.
The survey shows that 27 of 32 economists predict no cut in the benchmark by the end of 2013, while five see a reduction to 0.25%.
Mr Draghi said on May 2 that the ECB remains ready to act again after it lowered its key rate by a quarter- point the same day.
While economists in the survey reduced forecasts for euro-region gross domestic product this year, data suggest the 17-nation zone may return to growth after industrial production and factory orders in Germany jumped more than forecast.
“I don’t expect another ECB rate cut,” Marco Valli, chief euro-area economist at UniCredit Global Research in Milan, said. “Inflation will move closer to 2% again and we will see moderate economic growth in the second half of this year.”
In the eurozone, the annual inflation rate dipped to 1.2% in April from 1.7% a month earlier. That’s the lowest since Feb 2010. The ECB predicts prices to rise 1.6% this year and 1.3% in 2014.
Economists in the survey cut forecasts for inflation for the next three quarters and for 2014. Their median predictions are for inflation averaging 1.6% in both years. Professional forecasters in a quarterly survey by the ECB released yesterday see inflation at 1.7% this year and 1.6% in 2014.
The Bloomberg survey also showed a worse outlook for GDP this year.
Economists now see a contraction of 0.5% instead of 0.4%, according to the median prediction. Their forecasts show growth of 1% in 2014.
In the ECB survey, economists cut their euro- area GDP outlook for this year and now see a 0.4% contraction instead of stagnation.
A potential danger is that a deposit-rate cut may end up hurting banks’ profitability by lowering money-market rates, possibly hampering credit supply to firms and households even further.
— Bloomberg
