Keeping the QE door open

October 22, 2015

Swapping Frankfurt for the milder climes of the Med, ECB policy-makers meeting in the Maltese capital Valletta today are expected to keep the door open for more monetary stimulus but stop short of giving it, awaiting more evidence on the outlook for euro zone inflation. The Bank has got some outside help recently in the form of a slight rebound in oil prices, while the expected delay in the Fed’s rate hike also buys it some time. Yet the growth outlook is still poor – witness the German Finance Ministry’s overnight assessment of the impact of China’s slowdown on the euro zone’s top economy – and the euro is still a bit too strong for the ECB’s liking. December’s publication of the ECB’s staff forecasts may be the moment when the arguments for action become louder.

Despite some attempts by Eurosceptic local media to spin it the other way this morning, David Cameron will surely be happy with Bank of England chief Mark Carney’s much-awaited assessment of Britain’s membership of the EU last night: it is broadly good for the UK economy; doesn’t stop the Bank doing what it wants on rates; and just a few tweaks are needed to rein in the influence of euro zone members. That is pretty close to the pitch the British premier himself is making to stay in the bloc. All Cameron needs now is for visiting Chinese President Xi to come out today and say what a bad thing Brexit would be…

Middle East diplomacy comes to Europe, and more specifically Berlin, where US Secretary of State John Kerry is due to meet Israel’s Benjamin Netanyahu this morning. Yet breakthroughs may be elusive. Efforts by Ban Ki-moon to put a lid on the violence didn’t get anywhere – there have been more attacks overnight – and it’s unclear what Kerry can do to convince Netanyahu to rein in the firepower and rhetoric; likewise Palestine’s Mahmoud Abbas appears in no mood to make appeals for calm.

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