Jasper Juinen/Bloomberg

Here's Why the Markets Are Sure Draghi Will Cut Today

These are the events that made a rate cut look 100% certain

European Central Bank President Mario Draghi and his colleagues will cut their deposit rate at least 10 basis points on Thursday, if market expectations are right. Anticipation for a move has built over the past three months as stocks gyrated, crude oil slumped, and inflation expectations fell. Here's a timeline:

At the beginning of the year, market pricing implied about a 50 percent probability that rates would drop below minus 0.3 percent in March. Chances of a move climbed around the January ECB meeting, especially as Draghi pledged during follow-up speeches that policy makers have “no limits” on how far they’re willing to deploy measures within their mandate.

By mid-February,  at the same time as stocks staged an even steeper decline, virtually all market participants decided a rate cut was imminent. Inflation has shown no signs of materializing since, reinforcing that expectation.

"The ECB will likely, in our view, be keen to signal its sensitivity to persistent low inflation and inflation expectations,''  economists at BNP Paribas wrote in preview to the meeting. They project an even more dramatic cut of 20 basis points. 

 “It was really Draghi's comments, and the further drop in inflation — and we also had a drop in core inflation — which I think made a lot of economists and analysts turn around and say the ECB had to act,” said Carsten Brzeski, chief economist at ING-Diba AG in Frankfurt, adding that poor consumer confidence readings probably helped to cement expectations. “That's probably why we have a fully-priced, 100 percent consensus view that the ECB will act.” 


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