The firm joins in the growing chorus of those expecting the ECB to cut its deposit rate facility in September
In a report by the firm's economist, Anatoli Annenkov, they now expect the ECB to cut its deposit rate by 10 bps in September after introducing a "downward bias" to its forward guidance at the central bank's meeting next week.
The firm had previously argued that there is no need for the ECB to rush to cut rates in July and said that the central bank should have a better sense of the economy in September.
Their latest expectation here comes alongside expectations for the ECB to further reduce its deposit rate by 20 bps and refinancing rate by 10 bps in June 2020, as well as launch a QE program of €40 billion per month for a year.
The rationale for the move is that the firm sees it being a response to a slowdown in economic growth triggered by a US recession.
I find their reasoning to be the most interesting part as that means they foresee a US recession coming by the middle of next year. I reckon that is pretty much worst-case scenario for the global economy and it would take a quite a leap for data to get there from where we are now; though you can never rule it out completely.
If a situation like that arises, the yen would be the go-to currency in the FX space and I reckon we'll hardly be focused on other major central banks because their response will be automatic given that the Fed will have to cut rates by quite an amount to try and alleviate pressure on the domestic economy.
