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21 May 2013
Flash: ECB rates hinge on oil prices – UBS
FXstreet.com (Barcelona) - “With the Swiss National Bank continuing to cap the franc against the euro and the Bank of Japan having just committed last month to double the monetary base, the central banks more likely to respond in the near-term to lower oil prices dragging down inflation further appear to be the ECB, the Riksbank and the BoE.” notes the UBS Research Team.
In addition, this week UBS Economics lowered its Eurozone CPI forecasts and expects inflation to stay well below target at 1.4% YoY in 2013 and 1.5% YoY in 2015. According to the team, “That should be sufficient to keep the ECB on hold for now, having cut its refi rate by 25bps to 0.50% this month.”
However, if oil prices decline causing inflation to further undershoot, the ECB is likely to cut interest rates again. Similarly, weaker headline inflation in the UK would allow the BoE's Monetary Policy Committee doves to argue for renewed quantitative easing in the UK.
In addition, this week UBS Economics lowered its Eurozone CPI forecasts and expects inflation to stay well below target at 1.4% YoY in 2013 and 1.5% YoY in 2015. According to the team, “That should be sufficient to keep the ECB on hold for now, having cut its refi rate by 25bps to 0.50% this month.”
However, if oil prices decline causing inflation to further undershoot, the ECB is likely to cut interest rates again. Similarly, weaker headline inflation in the UK would allow the BoE's Monetary Policy Committee doves to argue for renewed quantitative easing in the UK.