E Will The ECB Soon Follow America’s Central Bank And Raise Interest Rates?

The international financial markets seem to be saying that the odds have increased that the ECB will hike interest rates by the end of this year.

The March 24^th, Daily Shot Brief report suggests that the ECB may be losing confidence in the value added of negative interest rates for stimulating economic growth, and may now believe that quantitative easing (QE) is more effective than negative rates.

Increasing ECB policy rates while continuing with bond purchases under a QE program would kind of resemble the Fed’s Operation Twist, i.e. raising short rates and keeping long rates low.

As of its last March meeting, the European Central Bank has held its benchmark refinancing rate at 0 percent for nine consecutive meetings and left its pace of its bond purchases unchanged.The ECB’s deposit rate and the lending rate were also left unchanged at -0.4 percent and 0.25 percent at its March meeting.

Monthly asset purchases continued at a €80 billion pace in March and were scheduled to drop down to a €60 billion monthly pace through to the end of 2017.

Finally, ECB staff are expecting steady, but slow economic growth over the next couple of years accompanied by positive inflation.

The March forecast for the euro area projects real GDP to increase 1.8% in 2017, 1.7% in 2018 and 1.6% in 2019. Annual inflation (the HCIP measure) is expected to average about 1.7% over the three years ending 2019.