JPMorgan, Deutsche Bank Now See ECB Cutting Rates This Week

(Bloomberg) -- Economists are increasingly counting on the European Central Bank to cut interest rates on Thursday, with Deutsche Bank AG and JPMorgan Chase & Co. joining colleagues at HSBC Holdings Plc and Oxford Economics in predicting reductions.

ECB President Christine Lagarde “will be aware that her first big policy decision will shape perceptions of her approach, and therefore it now makes sense to err on the side of a bigger response, given the deteriorating backdrop,” Greg Fuzesi, an economist at JPMorgan in London, said in a note to clients on Monday.

The ECB holds a scheduled policy meeting in Frankfurt this week, and investors expect a 10 basis point rate cut to the deposit rate, though economists still are divided if the Governing Council will act. Some are also predicting bond purchases will be boosted and a measure to direct liquidity to struggling small firms looks likely.

“The probability of the ECB announcing a package of policies has gone up, but the market will be underwhelmed by a package of several small measures,” Deutsche Bank economists Mark Wall and Marc de-Muizon wrote in a note. “The greatest market impact would come from ‘fiscally-equivalent’ policy options, such as taking more risk by expanding private asset purchases or coordinating monetary and fiscal policy. To do either, Lagarde may have to sacrifice council unity.”

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