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ECB rate cut sooner - or later?

Friday, November 01, 2013 - 02:09

Nov 1 - A recent slew of weak Euro zone data has put the spotlight on the European Central Bank - and whether it will have to act soon to spur the region's economy. David Pollard reports.

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It's an old saying, but it could apply to the euro zone: three steps forward, two steps back. As soon as good sentiment starts to re-emerge, fresh doubt appears. These protesters in Portugal a reminder that peripheral euro zone troubles rumble on... ... as parliament in Lisbon struggled to conclude a 2014 budget deal. On the table: a familiar package of spending cuts - public sector workers facing a drop in their salaries up to to 12 percent. The opposition Socialist party warning it will break the country .... And Portuguese prime minister, Passos Coelho saying: it will involve sacrifice. SOUNDBITE (Portuguese) PORTUGAL PRIME MINISTER, PASSOS COELHO, SAYING: "I don't hide and never have: it will be a difficult budget." The budget was approved, in outline. But record high unemployment across the euro zone is adding to the wider debate. Sixty thousand more jobless in September than in August, with one in eight workers unemployed, one in two young people without a job in the worst hit areas of the southern euro zone states. News coming out of the bloc is mixed at best, says Jeremy Stretch of CIBC. SOUNBITE (English) JEREMY STRETCH, HEAD OF FX, CIBC, SAYING: "The market considers the broader structural problems to be, if not solved, but certainly continuing to be in abeyance for the foreseeable future. But I think we continue to see structural pressures remaining writ large across the southern periphery." All eyes, then, on the European Central Bank and what it might do to boost the region's delicate recovery. Adding to the pressure for action - data showing euro zone inflation at a four-year low. The 0.7 percent figure was way under what was expected. Even further below the two percent target rate the ECB sees as optimum. If not this month, then action might come before the year is out. SOUNBITE (English) JEREMY STRETCH, HEAD OF FX, CIBC, SAYING: "There is still a residual risk that the ECB will come back in December in conjunction with their updated staff forecasts to consider both a cut in rates but also maybe looking at another LTRO to deal with the problems on bank balance sheets." Recent strength in the euro is seen as another argument in favour of a 25 basis points cut. Though that would leave the ECB little room for further manoeuvre, with rates already at record lows.

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ECB rate cut sooner - or later?

Friday, November 01, 2013 - 02:09