PARIS (MNI) – Most ECB watchers welcomed the persuasive arguments
and delivery of new ECB President Mario Draghi in justifying the
surprise 25 basis point cut to key interest rates on Thursday.

While some noted that he was less forthcoming about the future
course of monetary policy — “We never precommit” — than his
predecessor might have been, analysts generally expect further monetary
easing in the months ahead.

Following are excerpts of analysts’ comments:

HOWARD ARCHER, IHS Global Insight: “The ECB’s interest rate cut
suggests that Mario Draghi will not be afraid to make bold decisions
during his tenure as ECB president.”

TORGE MIDDENORF, WestLB: “I think in general, it was a big
surprise to us, too. We did not see a rate cut this year – even in
December. To us, it shows that maybe Draghi is a bit more pragmatic than
his predecessor. It could be a sign that maybe one more rate cut is to
come. We think that the ECB will cut its growth projections for next
year rather strongly at next month’s meeting. That is what Draghi
already indicated at the press conference today. And we think that this
might be the time where Draghi hints at another rate cut to 1.0% in
January. But we think that this is it, considering at least our growth
forecasts, which is already pretty low at +0.5% for next year. Still,
the situation is not as bad as in 2009. So, we think that will be the
floor — 1.0% — and interest rates will remain at that level until the
end of the year.”

JAMES SHUGG, Westpac: “We were calling for a quarter-point cut. We
put out a preview basically saying that the bank would be compelled to
revise down its staff projection forecasts next month, given that they
like to have some consistency with what major international institutions
are forecasting… Effectively, Draghi said that’s what’s going to
happen. So, in anticipation with that, they thought to ease rates. Our
view is that we’ll have another 50 points by the end of the first
quarter. So, as the situation becomes clearly more deteriorated, they
will continue to ease back on interest rates. The floor would be 0.75%.”

JEAN-CHRISTOPHE CAFFET, CEDRIC THELLIER, Natixis: “While this
(first) refi cut of 25 bps naturally will not alone resolve the current
crisis, it will give a breather to banks, whose recapitalisation needs
have been estimated at more than E100 billion by the EBA….We forecast
a second refi cut of 25 bps at the next meeting on December 8, when the
ECB presents its updated projections for growth and inflation.”

ELGA BARTSCH, Morgan Stanley: “We would not rule out another move
before year-end, but only if we have another marked deterioration in the
macro environment over and above what has been taken on board by the ECB
today.”

JULIAN CALLOW, Barclays Capital: “Overall, today’s introductory
statement to the press conference opens the way for further easing at
the 8 December Governing Council meeting, in our view: we continue to
look for a further 25 bps reduction in official interest rates … In
particular, in the opening paragraph, Mr Draghi commented that ‘some of
the downside risks have been materialising, which makes a significant
revision to forecasts and projections for average real GDP growth in
2012 very likely’ – a sign that today’s decision is partly anticipating
a major downward revision (we would look for the staff midpoint
projection to be lowered to around 0.4% for 2012 real GDP growth from
1.3% in September).”

KEN WATTRET, BNP Paribas: “It was made clear in the first paragraph
of the statement that the prospect of a downward revision to the staff
projections had already been factored into today’s decision. This makes
the rate cut which we had thought probable for December rather less
likely, in the absence of news flow which challenged the ECB’s view of a
mild recession materialising between now and early December (which
remains a possibility given developments in Greece, for example). As we
expect the ‘hard’ data flow, in the industrial sector in particular, to
weaken markedly in the period ahead, accompanied by more evidence of a
moderation in inflation pressures, we still think another 25-bp rate cut
will be delivered before long, fully reversing the hikes earlier this
year. The timing is very fluid, given the high level of uncertainty over
the future course of events, but our best guess at this stage is for
January or February’s meeting.”

CARSTEN BRZESKI, ING Bank: “With a weakening of domestic and
external demand and a worsening of hard and soft data, the ECB is now
expecting a mild recession towards the end of the year. Of course, the
ECB’s main objective is to maintain price stability and not to support
economic growth, but at the current juncture growth seems to be the main
concern and inflation is considered to be a second-round effect.
According to the ECB, the weaker economic prospects have reduced
inflationary risks. For the first time in a long while, the ECB talked
about inflation rates returning to levels below 2%. Nevertheless, at
least after today’s cut, the ECB still (or again) considers the risks to
the medium-term outlook for price developments as broadly balanced. All
in all, there was probably no single event which triggered today’s rate
cut. It looks as if the ECB already considered a rate cut last month and
just needed more evidence of a weakening economy to walk the walk.”

–Paris newsroom, +331 4271 5540; Email: stephen@marketnews.com

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