Euro zone inflation – due at 0900 GMT – is forecast to hold at a paltry 0.7 percent in May, in what European Central Bank President Mario Draghi has labelled the danger zone below 1.0 percent for the eighth successive month.
After German inflation fell to just 0.6 percent on the EU measure on Monday, well below forecasts, the bloc-wide figure could also undercut. We already know the Spanish and Italian inflation rates were just 0.2 and 0.4 percent respectively last month. If that comes to pass, any doubts about ECB action on Thursday, which are thin on the ground anyway, must surely be banished.
A clutch of senior sources have told Reuters the ECB was preparing a package of policy options for its meeting on Thursday, including cuts in all its interest rates and targeted measures aimed at boosting lending to small- and mid-sized firms (SMEs).
Measures being cued up included taking the ECB’s deposit rate negative for the first time – thereby charging banks to park money with the central bank in the hope they will lend it instead.
There are potential unintended consequences here. The ECB is trying to make money cheaper and more plentiful in the euro zone but the banks could pass this cost onto customers, a de facto tightening of policy, or deposit less money at the ECB which could drive up money market rates – another de facto policy tightening.