The rates of the ACBB analysis could fall faster as the risk of recession occurred

Of Balazs Koranyi and Francesco Canepa

Frankfurt (Reuters) – A global market route induced by United States President Donald Trump, has solidified the case for another reduction in the ECB rate next week and supports arguments for an even faster policy of the second largest central bank in the world.

According to economists, the expected financial slowdown induced by rates, along with the fall of market volatility, is likely to overcome the inflationary impacts of retaliation measures by the EU.

The markets now see almost two cuts of rates at the next two meetings of the European Central Bank and see between three and four steps between now and the end of the year. The yields of German good good, the reference point in the euro area, fell again on Monday, as the markets were priced in a recession to the blog and that they apply monetary to face it.

Although the ECB’s policymakers are far from a consensus on what it means in the long term, the route causes the rate next week to be reduced near certainty and interest rates could fall much deeper this year from the previous thought without jeopardizing the inflation goal of 2%.

In fact, the market crisis is so large, a recession is now a real possibility and the possibility of increasing growth could become a greater concern than inflation, which has been above the ECB’s goal for the last four years.

“They have to cut at each meeting, only due to uncertainty,” Frederik Ducrozet said to Pictet Wealth Management. “There is no sign of increasing long -term inflationary pressure.”

A number of influential ECB policy makers, including Pierro Cipollone, Francois Villeroy de Galhau and Yannis Stournaras, have called for more policies to be made in the current environment and none of the main Hawks have gone back.

Speaking privately, some policymakers even called into question the ECB’s projection that the EU’s retaliation more than retaliation would only reduce growth in a percentage half in the first year, and argued that the impact would be greater.

In fact, oil prices were abruptly lower on Monday, yields dropped, gold was reduced, and long -term inflation prices fell, a combination of market movements suggesting that a recession is now expected.

The EU is, for the moment, prioritizes negotiation on retaliation versus the United States.

However, more policymakers at ECB Hawkish, speaking privately, arguing that the Central Bank may be underestimating the inflationary impact of fare measures and their prediction of a short -term price effect may be deactivated.

They argue that the rates mean less trade, new value chains and higher costs, pointing to higher long -term underlying inflation, as in the decades before globalization.

More than rate cuts?

The ECB has said that rates are its main policy tool, but the bank also has a wide range of non -conventional instruments prepared in the event that the market is transmitted in a complete merger.

The ECB will become nervous if the bank loans are affected, the performance differential between the Member States of the euro zone rises to levels that are considered unjustified and disordered or if there is an increase in investment degree returns.

The big difference compared to the crises above is that Trump controls the narrative and could end the crisis with a pen of a pen or even it could make it worse.

“We are now in a territory of serious correction, not a thaw, but there is also a potential that will become a complete fusion,” said the economist Carsten Brzeski.

“If applicable, we return to ordinary crisis tools such as: liquidity injection through purchase of bonds, tltros or ltros, and perhaps a reinforced dollar exchange line.”

Teltros, or long -term refinancing operations, were used in the last decade to provide banks with cheap and multi -year funding, with incentives to use cash to maintain bank loans in the real economy.

The ECB also has a permanent facility with the United States Federal Reserve to access dollars if banks fight to find market funding. During the pandemic, the weekly operation worked daily.

There is no sign that this happens for now. Commercial banks sit at 2.8 trillion euros ($ 3.07 trillion) over liquidity and there was no demand on Monday at the ECB’s daily tendency.

The rates cuts are the focus at the moment, with the market price in a reduction of 25 basic points next week and, again, in June, and one or two more at the end of the year.

Looking later, the performance of the obligation of ten years from Germany dropped from 3 basic points to 2.59% in 1240 GMT on Monday, as the market was priced in a recession.

($ 1 = 0.9131 euros)

(Report of Balazs Koranyi and Francesco CanePa; edition of Susan Fenton)

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