Over the past month, the European Central Bank (ECB) has started to push out further its timing of when it may start to raise interest rates. It is now guiding that rates will remain on hold at their current levels “at least through the first half of 2020” compared to end of 2019 previously. The market expectation now is that rates will not start to be raised until the first half of 2022 at the earliest. It is saying the rational for this extension was a prolonging of certainty in relation to issues such as global trade and Brexit. Given the current uncertain global economic backdrop, if there is any change from the ECB in the near term, the market expects it to be a rate cut.

The ECB has been spooked by falling inflationary expectations and it may need to provide further stimulus to get inflation to move up towards its 2% medium-term target. Inflation in the Eurozone has remained persistently below target in recent years. It is currently at just 1.2%.