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

rates.

     "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.

     --WORRYING DATA

     "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

cut.

     "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: jason.webb@marketnews.com

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