Divyang Shah, Senior IFR Strategist
But a key factor in dampening such aversion to easing is simply the fact that inflation is not only low but has surprised the ECB of late.
This is something that ECB’s Constancio has highlighted saying that the ECB is closely monitoring the surprise drop in eurozone inflation.
Remember the latest OECD forecasts that show the institution looking for eurozone inflation of 1.5% this year but more importantly falling to 1.2% in 2014.
The outlook for inflation is the key reason as to why the OECD wants the ECB to embrace QE and also take the deposit rate into negative territory.
The focus on inflation is not new as we have seen Fed’s Bullard recently highlight that the ECB might need to embrace QE should inflation fall too low. The updated ECB staff projections to be delivered in June could be used as a justification for the ECB to deliver further stimulus despite resistance from Germany.
After all, if inflation is low and seen to be falling lower still, then it is well within the ECB’s mandate to do something about it even if Germany worries about the added stimulus.
