Losing patience with the ECB

Market makers including analysts, managers and investors are looking forward to next European Central Bank’s meeting on Thursday after figures anticipated about euro zone prices in January pointed that inflation dropped to its lowest level since the common currency creation: 07.% from previous 0.8% in December, very far from ECB’s goal of 2%. It means that shadows of deflation continues to looms over the region. Despite their last months’ cautious view, analysts in Madrid’s financial City see deflation an increasing possibility.

“Money supply’s slowing down , which moved by 0.5% yearly to 1% in December, is a deflationist reflection in the euro area”, experts from Afi explained. However, we do not expect any change in central bank’ s speech regarding prices’ evolution. They could create some mechanism to boost corporate credit and anticipate the macroeconomic scenario as well as sovereign exposures portfolios treatment for next banking stress tests.”

Other firms hold a more demanding stand on ECB’s role and expect the institution to take a firm move at last. “The main European Central Banks’ mandate is to control prices stability and that comprises risks upwards as well as downwards. Considering deflation in the euro zone may not be excluded, the European Central Bank should take action.”

Some analysts are also considering the ECB to reduce again its interest rates by 15 basis points to 0.10%. level. “That measure, which would be welcomed by markets, is not enough this time. If the institution does not want the fledgling recovery in the EMU to stop, it must develop a more aggressive monetary policies. The ideal would be to provide the financial system again with unlimited liquidity in the medium/short term via a new LTRO, although this vehicle now should subject credit awarding in the region to some specific conditions. It is just lack of credit for crisis as well as for banking sector balancesheets’ weakness and new regulations over capital what is burdening most of euro zone economies’ behaviour,” Figares said.

“Investors will not resign themselves on this occasion with hearing the ECB to say again it is prepared to act and use all kind of unconventional devices. Markets would react very negatively if the central bank remains unable to act,” he adds.