ECB likely to cut deposit rate by 20bp

Euro area HICP inflation remain steady at 0.1% y/y in November. Analysts expects the reading to post 0.2%y/y. Likewise, core inflation was also below expectation. It stood at 0.9% y/y in November against 1.1% y/y in previous month.

Energy price, due to base effects, showed some positive sign. It is increased to -7.3% from -8.5% y/y in October. With the upward trend, the energy price may cause the heading inflation to rise above 1.0% next month. The oil and gasoline prices remained flat at current level.

"We expect the ECB to cut the deposit rate by 20bp accompanied by a two-tier deposit rate system and to keep the door open for further rate cuts. At the same time, we expect an expansion of QE purchases to EUR75bn per month and believe the ECB will continue the purchases until December 2016 while keeping the open-endedness of the programme, as ending it should still be dependent on a sustainable adjustment in the inflation path", argues Nordea Bank.