European Central Bank (ECB) President Mario Draghi is expected to go big in a final stimulus push, overriding protests from among his ranks that tools such as bond purchases are not yet needed.
More than 80 percent of economists surveyed by Bloomberg predict officials would announce more quantitative easing next week.
They see the ECB’s deposit rate being reduced by 10 basis points to a record-low minus-0.5 percent this month and expect a second cut of the same magnitude in December.
Draghi, who leaves his post next month and is set to be replaced by outgoing IMF managing director Christine Lagarde, argued in July before the ECB’s summer break that the “outlook is getting worse and worse.”
By easing, the ECB would join a wave of policy loosening by central banks as the global economy cools because of protectionism and geopolitical tensions.
The US Federal Reserve might follow a week later with its second rate cut of the year, and the Swiss National Bank is seen as likely to reduce its key rate further below zero if the ECB acts.
ECB officials — including Germany’s Jens Weidmann, Dutchman Klaas Knot and Estonia’s Madis Muller — are among those who have recently expressed skepticism over the need for bond buying, saying it would be disproportionate to economic conditions.
While some economists — including those at Morgan Stanley — have scaled back their expectations in response, the median estimate among survey respondents is for a resumption of purchases at a pace of 30 billion euros (US$33 billion) a month for one year.
According to Bloomberg Economics, a program of such magnitude would require tweaks to existing guidelines that limit how much of a nation’s debt can be bought.
Economists in the survey also see the ECB introducing mitigating measures to contain side effects from negative rates.
“A risk exists that the ECB compromises on a less-bold package than our expectations,” Danske Bank analyst Piet Christiansen said. “However, the ECB’s credibility is on the line.”
Any expansion of unconventional measures — whether through interest rates or bond purchases — would mark a profound shift from late last year when officials were preparing to wind down monetary support.
Since then, growth momentum has slowed significantly, and economists expect the ECB to revise down its outlook for growth and inflation yet again.
Trade is still dominating the list of concerns, followed closely by a disorderly departure of the UK from the EU.
Economists as well as policymakers have argued that even a comprehensive easing package would do little to help the region in the event of a deeper economic crisis if it is not accompanied by help from other actors.
Lagarde, who is on track to join the ECB in November, said earlier this week that countries with room for spending should use it, and called for a European-level fiscal capacity.
“The ECB’s main priority will be to encourage euro-area governments to pursue fiscal stimulus,” Global Alliance Partners economic adviser Alastair Winter said. “Lagarde was parachuted in to the ECB to build a consensus for a cocktail of loose monetary and fiscal policies.”
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