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Expectations mount for ECB QE after inflation tumbles

  • 03/06/2014
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Investors have today called on the European Central Bank to loosen monetary policy after inflation in the eurozone tumbled last month.

Eurozone inflation fell to 0.5% in May, down from 0.7% in April and well below the European Central Bank’s 2% target.

The fall means the ECB – headed by Mario Draghi (pictured) – will be expected to take steps to boost growth and counter the threat of deflation when it meets on Thursday.

Ahead of the meeting, investors said it was now time for the ECB to act. Dominic Rossi, global chief investment officer, Fidelity Worldwide Investment, said: “Today’s inflation numbers underscore the need for the ECB to act.

“The ECB has consistently underestimated the deflationary forces threatening Europe and now is the time for unconventional monetary policy.”

The region remains plagued with high levels of unemployment – although latest figures have shown a marginal improvement – and joblessness is weighing on GDP growth.

While the UK and US have seen annual growth rates of around 2% for 2013 or more, Europe is barely growing.

The bloc’s economy expanded by just 0.2% in the first three months of the year.

Azad Zangana, European economist at Schroders, said the growth and inflation numbers meant the ECB was now under pressure to deliver significant policy loosening.

“The market expects at least a cut in the main policy interest rate, along with a cut to the deposit rate, but will there be anything further to support bank lending and demand across the economy?”, he said.

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