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ECB: A rate hike before end of quantitative easing?

Wednesday, Dec 27 2017
ECB: A rate hike before end of quantitative easing?

The euro zone is enjoying one of its best moments since the financial crisis with growth rates outstripping those of the United States. In the third quarter of 2017, the 19-member area grew 0.6 percent from the previous quarter and 2.5 percent on a yearly basis; the U.S. rose 2.3 percent year-on-year. "The euro zone economy is firing on all cylinders," Nick Gartside, international chief information officer of fixed income at JP Morgan Asset Management said. "Given this very strong growth backdrop, the risk is that the market begins to price in European Central Bank (ECB) rate hikes sooner." At the moment, markets don't expect any rate hikes in 2018 and the ECB has left the door open to increasing its stimulus if the economic conditions shift.

The ECB announced in October a reduction of its monthly purchases from 60 billion euros ($70.41 billion) to 30 billion euros, starting in January and lasting until at least September. Cates from Nomura believes that core inflation will be higher in 2018 compared to the central bank's forecasts. If this materializes, it would pressure the bank to lift the stimulus pedal even further. However, Cates warned that political instability could prove to be a negative for the economy. The upcoming election in Italy due in the first half of 2018 is seen as a potential risk due to the growing presence of populist parties.

More in this category: « UK house price growth to slow dramatically in 2018, say experts CB Consumer Sentiment slipped to 122.1 »

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