(Bloomberg) -- Euro-area inflation expectations slid to a record low, adding pressure on the European Central Bank to step up policy support for the region’s economy.
Five-year forward five-year inflation swaps, a gauge of investor estimates of price increases in coming years, dropped Wednesday to 1.1830%, well below the ECB’s target of close to, but below 2%. That suggests the central bank may have to take further steps to revive inflation, such as restarting bond buying, or potentially even cutting interest rates deeper into negative territory.
Money-market prices imply traders are betting that the ECB will lower its benchmark deposit rate by 10 basis points to -0.5% by June 2020, while European yield curves have flattened on speculation the monetary authority could resume debt purchases as early as next year. ECB officials, including President Mario Draghi, have said that they still have tools to combat the inflation slowdown and that market expectations have not become de-anchored.
“Draghi is probably not very satisfied with 5y5y ILS hitting a fresh record low,” wrote Christoph Rieger, head of fixed-rate strategy at Commerzbank AG.
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