MacroScope

Biggest analyst split on ECB rate decision since euro launch

September 6, 2012

Some say the European Central Bank will cut rates. Some say they won’t.

The odds that either prediction could turn out to be true on Thursday are more even than since Reuters first began polling on ECB rates in 1999.

Even during the highly volatile, uncertain time that followed the collapse of Lehman Brothers, Reuters polls of ECB watchers always resulted in a clear majority of economists leaning toward one particular rate cut size.

In the Reuters poll taken last week, 36 of 70 economists expected the ECB to leave the refi rate at 0.75 percent, while almost as many, 34, said it would cut it to 0.50 percent.

The obvious explanation for the split is that the main focus clearly is not on interest rates.

A central bank source told Reuters on Wednesday that there “would be no time to discuss interest rates.”

Instead, ECB President Mario Draghi is expected to elaborate on a much-anticipated programme to purchase Spanish and Italian government bonds to keep those borrowing costs down.

While Draghi is likely to spell out a framework for new bond purchases, he will give no details of planned amounts or explicit targets for yield spreads or levels of interest rates, two central bank sources told Reuters.

Another explanation for the unusual analyst split on ECB rate policy is how much difference would another rate cut make anyway?

The central bank’s main interest rate is at a record low and its deposit rate, what institutions are paid for keeping balances overnight, is already at zero.

Carsten Brzeski, senior economist at ING said:

(Thursday’s) meeting is really all about the bond purchasing plan. Interest rates are already very low. For the economy, it won’t make a big difference whether the rates are cut.

It also won’t make a big difference to the euro crisis.

(With additional reporting by Deepti Govind)

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