European Central Bank expected to remain cautious despite global upturn
Today, the European Central Bank meets in Latvia to review monetary policy settings for the Eurozone.
The meeting comes one day after the US central bank raised rates, citing May’s jobs report as a sign that the American economy continues to improve.
Fear of a global trade war, currency swings and political turbulence aside, the ECB will very likely raise rates too today.
Despite the rate hike, Europe’s top bankers are likely to tread cautiously when providing their forward guidance on the long-term implications of the rate hike.
Mindful of the Bank’s two disastrous hikes in 2011 that exasperated the Eurozone’s debt crisis, the Bank will seek to balance raising rates with aggravating the debt. Since before 2012, the Bank has been gradually lowering the interest rate. At the same time, the EU government debt to GDP has only marginally decreased from 91.9% to 86.7%. The Bank will cautiously raise the rate today, keeping an eye on how that impacts the debt.
The ECB will also be cautious with quantitative easing initiative: its emergency $3 trillion asset purchase program. Expect the ECB to extend the programme for at least three months as a safety net for possible negative repercussions from another rate hike.
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