ECB has narrow window for rate hikes: Economists

Bloomberg

The European Central Bank (ECB) will only have a narrow window to raise interest rates before the euro-area economy becomes too weak, according to a Bloomberg survey of economists.
Mario Draghi is seen lifting the deposit rate at his final meeting as president in October, but his successor will only have until spring of 2020 to tighten policy before soft
economic growth requires a lengthy pause.
“If they see a good opportunity they will move but that’s obviously under the assumption there will be a recovery in growth,” said Elwin de Groot, senior market economist at Rabobank in Utrecht, Netherlands. “By the end of 2020 we may actually be facing more difficult circumstances.”
Economists and investors have pushed back their expectations for higher rates after a string of disappointing data. That meshes with global concerns that geopolitical disputes are hurting growth.
The survey shows a loss in euro-area momentum, trade tensions and a disorderly Brexit as the biggest threats. Draghi told the European Parliament that the region isn’t headed for a recession, though the current slowdown could last longer than expected. The Governing Council will meet to set policy on January 24.
The weakness is reflected in the euro, which is down 0.5 percent against the dollar and 2 percent against the pound this month. Still, some officials have warned against excessive pessimism. Executive Board members Yves Mersch and Sabine Lautenschlaeger as well as Estonia’s Ardo Hansson argu-ed the economy is broadly evolving as projected.
Almost two-thirds of respondents in the survey said the ECB will reiterate that risks to the economic outlook are still broadly balanced.
“It wouldn’t be wrong to describe risks as tilted to the downside but this could be understood by market participants as a need to ease policy further,” said Kristian Toedtmann, an economist at Dekabank in Frankfurt.
“It probably couldn’t deliver upon such expectations.”