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Europe’s weakening inflation outlook spurs calls for ECB action

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London - Analysts at Mizuho International and Royal Bank of Scotland Group stepped up calls for more monetary stimulus as an indicator of the eurozone’s inflation outlook derived from forwards languished near a three-month low.

The five-year, five-year forward inflation swap rate - which measures the price-growth outlook for a half-decade starting five years from now - fell this week to the lowest since October. The market turmoil spreading from China since the start of this year is weighing on the measure, which strategists say is heaping pressure on the European Central Bank to act.

ECB officials led by President Mario Draghi will increase the pace of their bond-purchase program at March’s policy meeting, according to Peter Chatwell, head of rates strategy at Mizuho in London. RBS predicts 0.4 percentage point of cuts to the central bank’s minus 0.3% deposit rate, and sees the region’s bonds rallying as a result.

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