Despite Eurozone inflation rising in December, the European Central Bank (ECB) kept interest rates the same this week, saying there were no clear signs of an upward trend in underlying inflation.
Timothy Graf, regional head of macro strategy at State Street Global Markets, agreed and said that underlying inflation remained sluggish, which should counter thoughts of removing “policy accommodation that might arise from the more hawkishly inclined members of the governing council”.
Generally, the ECB decision is seen as suggesting the Bank will keep its asset purchasing programme running.
Sandra Holdsworth, fixed income portfolio manager at Kames Capital, said the decision reaffirmed a view that the ECB will keep the deposit rate in Europe negative for the foreseeable future and the fixed income markets will remain underpinned via the asset-purchasing programme.
She added that this policy made Eurozone government bonds “unappealing as investments on their own” and she woud favour a strategic or absolute return bond approach.
The chief UK and European economist at IHS Global Insight, Howard Archer, said that while the ECB is relatively upbeat on Eurozone growth prospects, it is very aware that there are uncertainties ahead, especially political ones. These included elections in the Netherlands, France and Germany, the start of the Brexit process, and Donald Trump’s presidency in the US.
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