ECB-ometer close to rate cut forecast
Simon Ward
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My ECB-ometer model suggests a 37% probability of a rate cut this week, up from 34% last month. See chart.
Assuming no change in the inputs, a reduction before year-end is now viewed as almost certain.
The further move towards easing territory reflects falls in business confidence, inflation expectations, M3 growth, short-term bond yields and stock markets. The main factor holding the model back from predicting a cut this week is the absence to date of any explicit dovish signal from ECB President Trichet.
The statement issued after tomorrow's meeting is likely to refer to diminishing upside inflation risks and / or increased downside growth risks, giving a clear hint of a move in November or December.
I shall post the MPC-ometer forecast on Monday but initial indications are consistent with my expectation of a rate cut at next week's meeting.
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