ECB to Cut Following Fed’s ‘Decisive’ Action, Commerzbank Says

(Bloomberg) --

The European Central Bank will respond to the Federal Reserve’s “decisive” interest rate cut with easing of its own, according to Commerzbank AG.

With the outlook deteriorating, officials in Frankfurt are likely to cut the deposit rate by 10 basis points and boost monthly bond buys by 20 billion euros ($22.3 billion) at their meeting next week, Joerg Kraemer, the German bank’s chief economist, said in a note on Tuesday.

Although the subzero policy causes some harm, “the ECB will probably not want to forgo the signal effect of an interest rate cut in order to make a greater impression on the market,” he wrote. “The ECB is likely to combine the interest-rate cut with an increase in the allowances in order to reduce the burden for the banks.”

Commerzbank also halved its growth forecast for Germany to 0.4% for 2020. For the euro area, it sees growth 0.5%, down from a previous forecast of 0.9%.

©2020 Bloomberg L.P.

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