ECB’s ‘Colombian’ members to push for October rate cut, sources say

The European Central Bank’s “Colombia” members will push for an interest rate cut next month following a series of weak economic data in the euro zone, a move that is likely to meet resistance from their more conservative counterparts, seven sources told Reuters.

ECB officials said an interest rate cut on Oct. 17 was unlikely after cutting borrowing costs this month on weaker growth forecasts and expectations of a continued, if uneven, decline in inflation next year.

However, eurozone PMI data and confidence data in Germany, as well as a stronger-than-expected slowdown in wages, have encouraged “Colombia” members to push for a cut, the sources say.

Energy costs have also fallen in recent weeks, and some market indicators now point to the risk that the central bank could fall below its inflation target for a prolonged period.

However, any attempt to cut rates again will face stiff opposition from more hawkish members, who argue that surveys of economic activity generally paint a more pessimistic picture than hard data such as GDP numbers, the sources added.

Some sources have raised the possibility of a compromise in which rates would remain unchanged in October but a strong signal of a cut would be given in December if data did not improve, contradicting the ECB’s “meeting by meeting” approach.

An ECB spokesperson declined to comment.

With the Oct. 17 decision still three weeks away and key data such as September inflation not due until next week, the decision remains open and some members have not yet made up their minds, the sources said.

While few officials have gone so far as to rule out an October cut in private conversations, Slovakia’s Peter Kazimir has said publicly that the ECB will “almost certainly” have to wait until December.

Traders have increased bets on an October cut following recent weak data. Markets now see a 50% to 60% chance of the ECB cutting its deposit rate by 25 basis points to 3.25%, up from a 35% chance a week ago.

Source: Terra

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