As European Central Bank (ECB) President Mario Draghi geared up for a full day on Friday at the World Economic Forum in Davos, Barclays changed its call on monetary policy and now expects a rate cut in the next couple of months.
In a report published on Thursday, the British bank noted the change from "on hold" to a 15 basis-point (bp) reduction in February or March. Barclays explained that the rate cut would be implemented to combat deflation fears.
These experts also forecast a 10bp cut in the rate for the deposit facility that would take it into negative territory.
"Targeted measures to limit the risk of a restraint in credit supply are likely as a next step," Barclays said, pointing to the possibility of a conditional long-term refinancing operations at a "shorter than three-year maturity" that should come once the ECB has completed the asset quality review of European banks.
"Should deflationary pressure increase in the coming months, we think an asset purchase programme would be required to effectively dispel the spectre of deflation," they said.
But Draghi himself currently sees no threat of deflation as he made quite clear in an interview with Neue Zürcher Zeitung published on Thursday. "What we do not see, frankly, is deflation. Inflation expectations are firmly anchored in the medium term," he insisted.
In any case, the ECB chief has two appointments today at the World Economic Forum in Davos. At 13:00 London time, he will be participating, with the likes of Bank of England Governor Mark Carney, Bank of Japan Governor Haruhiko Kuroda, International Monetary Fund Managing Director Christine Lagarde and German Finance Minister Wolfgang Schäuble, amidst others in a panel on the global economic outlook for 2014.
Later at 17:00, Draghi will give a special address titled 'The Path from Crisis to Stability'.
"He will likely continue to sound dovish about the economic recovery and also mention the outlook for inflation," Danske Bank said in a report published on Friday. "Any comments about the latest money market development will be met with interest," it said.
In a report published on Thursday, the British bank noted the change from "on hold" to a 15 basis-point (bp) reduction in February or March. Barclays explained that the rate cut would be implemented to combat deflation fears.
These experts also forecast a 10bp cut in the rate for the deposit facility that would take it into negative territory.
"Targeted measures to limit the risk of a restraint in credit supply are likely as a next step," Barclays said, pointing to the possibility of a conditional long-term refinancing operations at a "shorter than three-year maturity" that should come once the ECB has completed the asset quality review of European banks.
"Should deflationary pressure increase in the coming months, we think an asset purchase programme would be required to effectively dispel the spectre of deflation," they said.
But Draghi himself currently sees no threat of deflation as he made quite clear in an interview with Neue Zürcher Zeitung published on Thursday. "What we do not see, frankly, is deflation. Inflation expectations are firmly anchored in the medium term," he insisted.
In any case, the ECB chief has two appointments today at the World Economic Forum in Davos. At 13:00 London time, he will be participating, with the likes of Bank of England Governor Mark Carney, Bank of Japan Governor Haruhiko Kuroda, International Monetary Fund Managing Director Christine Lagarde and German Finance Minister Wolfgang Schäuble, amidst others in a panel on the global economic outlook for 2014.
Later at 17:00, Draghi will give a special address titled 'The Path from Crisis to Stability'.
"He will likely continue to sound dovish about the economic recovery and also mention the outlook for inflation," Danske Bank said in a report published on Friday. "Any comments about the latest money market development will be met with interest," it said.
