The European Central Bank will delay an interest rate increase until late 2020, amid slower economic growth, Deutsche Bank is predicting.
The reason, according to the bank, is that the euro region is “slowing rapidly,” a Bloomberg News report indicated. At present, futures markets are predicting March 2020 for the rate rise, namely a 0.1 percentage point hike in the eurozone’s benchmark deposit rate. Slowing external demand is a key part of that, the bank’s economists said.
The rate now sits slightly below zero, at -0.4%, meant to encourage banks to make more loans and stimulate the economy. But the negative rate is an impediment to the profitability of banks in the zone. ECB Chairman Mario Draghi remarked in December that the central bank was “monitoring carefully” how this situation was playing out.
At its January meeting, the ECB left rates unchanged, as expected. It has lowered rates since the 2008 financial crisis, with a brief raise in 2011.
The 19-nation bloc’s economic growth, which had surpassed that of the US in 2016 and 2017, has decelerated lately. Germany, which has the region’s largest economy, reported that its gross domestic product expansion was 1.5% in 2018, down from 2.2% the year before.
This comes amid the Federal Reserve’s steady campaign to raise US short-term rates. Last year, for instance, the Fed increased rates four times, to a current band of 2.25% to 2.5%. As a result, the European common currency has dropped 9.6% over the past 12 months, now sitting at $1.13 per euro.
The ECB in December announced that it was ending another stimulus initiative, its four-year campaign to buy bonds, known as quantitative easing. The central bank has bought some $2.5 trillion in that time.
