UPDATE 1-Bund yields near two-week lows after ECB policymaker’s comments

15 Oct 2015 | Author: | No comments yet »

International news | euronews, latest international news.

(Reuters) – The European Central Bank will extend its stimulus programme beyond September 2016, according to economists in a Reuters poll who were less decided on whether it would spend more than the current 60 billion euros a month in bond purchases. Launched just over six months ago, the ECB’s quantitative easing programme has so far done little to boost inflation, drive growth or even keep the euro low for a sustained period, the goals the central bank had hoped the stimulus would achieve. Instead, forecasts for inflation at the end of 2015, 2016 and 2017 have either stayed constant or been downgraded in each Reuters poll since May, even as euro zone inflation slipped back below zero last month.

The latest survey of over 60 economists showed inflation would average 0.1 percent this year, rise to 1.1 percent in 2016 and further to 1.6 percent in 2017 – still much lower than the ECB’s near 2 percent target. “The foundations are still very shaky and the economy has flipped back to outright deflation in September. We think the ECB has to do another round of QE to get the exchange rate back down and that should boost inflation,” said Florian Baier, economist at Fathom Consulting.

The median probability of the ECB extending QE stood at 70 percent from those economists who answered the question, while the likelihood of increased monthly purchases over the next six months was a still-significant 40 percent. And the consensus from a smaller sample of economists showed the total size of the ECB’s QE programme would rise to 1.52 trillion euros from the current 1.1 trillion euros target.

Seventeen of 31 respondents in the survey who responded to the question answered “No” when asked if the ECB was in control of euro area inflation. A meaningful rise in inflation is contingent on a few major factors – higher oil prices, which have slumped by half over the past year, increased demand from businesses and consumers, and a weaker euro.

But oil prices are not expected to climb substantially over the coming year, while high unemployment in the euro area – two out of ten people don’t have jobs in Spain – is likely to keep a lid on consumer spending. [O/POLL] The euro has weakened over 5 percent since January and is expected to fall some more over the coming year but its prospects hinge on the U.S. dollar, which is rallying on hopes the Federal Reserve will soon raise rates. [EUR/POLL] Among the top concerns for Fed Chair Janet Yellen, apart from weak job growth and low inflation in the U.S., is China’s economic growth, which is most recently predicted to slow to 6.8 percent in 2015 and 6.5 percent next year. [ECILT/CN] China is a major importer of finished goods from euro zone countries, most notably Germany, and a slowdown there is likely to have significant impact on growth in the monetary bloc. In Germany, economists expect a surge in imports to surpass exports this year and next, meaning foreign trade is unlikely to make a strong contribution to growth, if any at all. But the Irish economy is roughly just one-twentieth the size of Germany’s and Spain is about one-third. (Additional reporting and polling by Khushboo Mittal and Hari Kishan in BENGALURU, Michael Nienaber in BERLIN, Brial Love and Yannin Le Guernigou in PARIS, Viviana Venturi in MILAN, Steve Scherer in ROME; Editing by Jeremy Gaunt)

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