<p style="" class="text-align-justify">The take on this is that whatever the ECB decides on interest rates today, they may end up on the losing side regardless.</p><p style="" class="text-align-justify">A 25 bps rate hike would put into serious question their resolve to battle against inflation, particularly after having delivered a commitment of sorts that they would go with a 50 bps move. The fact that they may relent on their stance would put the euro in a tough spot, especially with core inflation still running rampant in the region.</p><p style="" class="text-align-justify">Meanwhile, a 50 bps rate hike won't do them much good either considering the circumstances in the global financial system. Markets worries are as high as ever and haven't really subsided too much in the past day, so the timing of today's policy decision is rather unfortunate I must say for policymakers.</p><p style="" class="text-align-justify">I mean, the Fed at least gets another week for markets to pacify themselves before coming up with a decision but the ECB is pretty much put on the spot right here to also try and calm the nerves – especially now that the banking crisis could perhaps look to spread to Europe.</p><p style="" class="text-align-justify">My personal inclination is that they would stick with a 50 bps move. It's tough to imagine them really running back their words and that would risk a serious communication failure on their part. That said, I would expect them to present several solutions – if needed, can be taken up at any point – with regards to helping out banking liquidity.</p><p style="" class="text-align-justify">On the latter, I reckon it should involve making adjustments to TLTRO terms for starters before exploring other options.</p><p style="" class="text-align-justify">But if they do so, don't expect markets to like the decision though. There might yet be more kicking and screaming before all is said and done.</p>
This article was written by Justin Low at www.forexlive.com.
Leave a Reply