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ECB likely to cut growth forecasts, increase headline CPI projections in June

According to the latest headlines flashing on the wires, via Reuters, citing four sources close to the matter, sluggish growth has not weakened the European Central Bank’s resolve to end a bond-buying scheme later this year but could make it more cautious about signalling interest rate hikes.

Key points:

   “¢   There was unusual unity among ECB rate-setters about ending the bond purchase scheme after a short taper, and that the real debate would be about the future path of interest rates.

   “¢   Recent soft indicators suggest growth is levelling off “” settling into a lower gear but still performing above potential, which will continue to generate inflation.

   “¢   Higher oil prices and a weaker euro are likely to mean an increase in some of the ECB’s headline inflation projections next month.  

   “¢   Core inflation projections will not change significantly when the new estimates are released, however, and some growth forecasts are likely to be cut.

   “¢   Expected timing of the first rate hike, roughly six months after the ECB ends bond buys, could be challenged if the growth environment weakens further.

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