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MNI SOURCES: Chances Rise Of ECB Rate Cut On Data, Coronavirus

     LONDON (MNI) - The chances are rising of a European Central Bank interest
rate cut if eurozone economic data continues to disappoint and coronavirus
persists as a threat to global trade, ECB officials told MNI, with one saying
officials from some member states were already privately arguing for lower
     "Certainly if this data continues into another round, the mood for imminent
action will increase and I still believe that there is a consensus around the
table that when needed, we will take the right action at the right time," one
official told MNI, calling the latest economic data "very discouraging" and
describing coronavirus, for all its unknowns, as "obviously a serious downside
risk to growth."
     "Risks that we thought were parked are rearing their heads," the official
said, noting that there was still a risk of a hard Brexit at the end of the year
and that coronavirus might not only slow Chinese demand and interfere with
supply chains, but also derail a smooth implementation of the 'phase 1' trade
deal with the U.S.
     Further easing would be more likely to take the form of a rate cut than of
any extension to the ECB's asset purchase programme (APP), the official said. An
"insurance cut" could also be reversed fairly quickly if necessary.
     "I wouldn't say further easing it is likely in March, but then I couldn't
argue that it isn't more likely than it was last month," the official said,
noting that the ECB would release its quarterly forecasts by its meeting on
March 12.
     Another ECB official told MNI that some smaller countries were already
pushing for a rate cut.
     "It has been a topic of discussion ever since the end of last year, though
not much about it has leaked from meetings," the official said.
     "A few weeks ago, before the virus outbreak, I would have said that the
policy outlook remained unchanged, given an unchanged scenario, with APP going
on at least until September and rates staying at current levels beyond the end
of APP. But now the picture has changed. We just need to properly weigh up to
what degree."
     January industrial production data from Germany, France and Italy was very
worrying, the official said, adding that further poor figures were expected in
February, in part due to the coronavirus.
     A third official was more cautious, saying that the "pressure is not that
big yet" for a rate cut, although conceding that poor data is changing the
balance of risks.
     But a fourth insisted that it now seemed more likely that rates could be
     "If the data for the rest of the month and beginning of March [doesn't
improve] then they may have to do something. Regarding QE, the number is totally
agreed. But another drop of 10 basis points on the [deposit] rate, why not?" the
fourth official said, adding that any such move would be a test of the strength
of the relationships built by President Christine Lagarde since her arrival late
last year, since when she has attempted to repair the rifts over policy on the
Governing Council exposed following last September's easing package.
     An ECB spokesman declined to comment on what the officials told MNI.
--MNI London Bureau; +44 203 865 3829; email:
[TOPICS: M$X$$$,MT$$$$,MX$$$$,M$$EC$]

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