Nonetheless, the European Central Bank is likely to sit tight at its policy meeting today. The Bank of England’s rate setters are also meeting but facing a very different set of problems.
It’s probably too early for any dramatic moves but the ECB may well be pushed into easing policy if inflation refuses to pick up and/or the banks clam up ahead of this year’s health tests. Today, Mario Draghi is likely to reaffirm its readiness to act.
A shock fall in euro zone inflation prompted an interest rate cut to 0.25 percent in November followed by a chorus of denials that deflation was a threat.
Draghi adhered to that last week but added that he and his colleagues had to make sure inflation didn’t get stuck in the “danger zone” below one percent. It’s been there for three months already. Furthermore, lending to euro zone companies shrank at the fastest pace on record in November.