ECB leads the big pa­rade, Fed strolls the other way

The Pak Banker - - FRONT PAGE -

LON­DON: When Morocco's cen­tral bank cut in­ter­est rates on March 22, it joined a pa­rade of 46 oth­ers that have eased mone­tary pol­icy at least once since the be­gin­ning of 2015.

Per­haps more tren­chantly, it was also the 15th time this year - still less than a quar­ter old - that a cen­tral bank has eased pol­icy in some form. Tai­wan and Tur­key have since taken that up to 17. The pa­rade is clearly still on the march, with the Euro­pean Cen­tral Bank wav­ing the baton some­where out in front. The U.S. Fed­eral Re­serve, how­ever, is strolling the other way, hav­ing raised rates.

The 19-na­tion euro zone will re­lease in­fla­tion data for March on Thurs­day and it is ex­pected to show prices fell on an an­nual ba­sis for the sec­ond month in a row. Amer­i­can ex­cep­tion­al­ism should be on dis­play the day af­ter, with U.S. monthly jobs data show­ing con­tin­ued, if per­haps not over­whelm­ing, growth. For the euro zone, a poll shows year-on-year in­fla­tion com­ing in at -0.1 per­cent, a smaller fall than the -0.3 per­cent in Fe­bru­ary, but still an ac­tual fall in prices.

While some may ar­gue that this is not real de­fla­tion - that is, it is nei­ther deeply em­bed­ded nor yet de­ter­ring con­sumers from buy­ing on the grounds that things will get cheaper - it is a far cry from what the Euro­pean Cen­tral Bank wants it to be.

The ECB seeks to have in­fla­tion run­ning at just be­low 2.0 per­cent, some­thing it has not had since early 2013.

It is for that rea­son - as well as the fragility of growth - that the bank this month ex­panded its money-print­ing and cut rates.

The im­pact will for the most part not be seen in Thurs­day's data, but some are scep­ti­cal that any­thing will change soon, and an­other fall in prices will do lit­tle to en­cour­age a be­lief that things are on the mend.

"Most con­cern­ing (in the global outlook) is the re­newed de­te­ri­o­ra­tion in the in­fla­tion outlook in the euro area and Ja­pan," Bar­clays econ­o­mist Chris­tian Keller said in a note.

"Oil and other tran­si­tory fac­tors play a role, but sec­on­dround ef­fects and wors­en­ing ex­pec­ta­tions can turn this into a per­sis­tent trend, mov­ing the 2 per­cent in­fla­tion targets fur­ther out of reach."

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