The Euro is forecast to remain under sustained pressure until June as investors and economists continue to raise their bets that the European Central Bank will introduce new monetary easing measures at its next policy meeting.
According to German newspaper Spiegel the ECB policymaker Peter Praet is likely to recommend that the Central Bank cuts interest rates from the already record low level of 0.25% to a new low of just 0.15%.
The ECB is also likely to announce that it will introduce a negative rate on bank deposits of -0.1%. Such a move would be the first in the ECB’s history and is likely to send the Euro tumbling as investors are unlikely to like such a move.
A negative deposit rate would see banks having to pay a fee to park their money. For example if a bank wants to deposit €200 million in a central bank account the ECB would withhold €200,000.
The aim of negative rates is to encourage banks to lend more instead of keeping it within the ECB.
The move could help the still struggling areas such as Greece and Spain as companies based in those countries are still struggling to obtain needed loans.
The move is also likely to send the Euro tumbling which would likely help Eurozone exporters.
In a survey conducted by Bloomberg news 90% of economists said that they believe that the ECB will ease monetary policy at the meeting on June 5th.
Speculation for an introduction of new easing measures was boosted last month after ECB President Mario Draghi said that the Bank’s policy makers would be comfortable with taking action in June if data showed continued weakness in the Eurozone.
Inflation has remained well below the ECB target of just under 2% and the region’s GDP data released last week disappointed, as it showed that the French economy faltered. The Netherlands and Italy saw their GDP shrink in the first quarter of the year.
His comments prepared investors for stimulus measures being introduced but if they disappoint or do not match expectations we could see the Euro push higher.
“Draghi is clearly pre-committed. As any other central banker should know, he would risk his reputation and a significant strengthening of the Euro, if the ECB doesn’t follow through in June,” said an economist from Rabobank.
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