Global markets to focus on ECB credit measures this week
FRANKFURT: Financial markets will be keen to hear this week if the European Central Bank plans changes to its exceptional measures to underpin lending amid mixed signals on the global economy.
The ECB's main interest rate will likely stay locked in at a record low of 1.0 percent on Thursday as the central bank releases its latest forecasts for growth and inflation in the 16-nation bloc. The bank "has absolutely no reason to raise interest rates," Capital Economics senior European economist Jennifer McKeown said.
Eurozone inflation stood at 1.7 percent in July, comfortably below the ECB's target of just under 2.0 percent, and should edge lower in August owing to cheaper energy costs compared with a year ago. The ECB's headline interest rate is identical to that of the Bank of Japan, while the Bank of England's benchmark rate is 0.50 percent and the US Federal Reserve has kept its Fed funds rate at virtually zero.
Back in the eurozone, although Germany saw record growth in the second quarter and the region as a whole did better than Japan or the United States, countries on the periphery seemed to be falling behind.
The Greek economy contracted further, Portuguese and Spanish recoveries remained timid and Ireland's downgraded sovereign credit rating reminded investors the battle against deficit and debt was not over.
"Debt fears are back in European government bond markets," Barclays Capital economist Thorsten Polleit said.
The price that peripheral countries must pay to borrow money has widened again compared with benchmark German bonds and a controversial ECB programme to buy sovereign debt slipped back into low gear last week after coming almost to a halt.