(Photo: Jessica Fejos)

In a revised forecast, JP Morgan said it now expects a 10 bps cut in the ECB deposit rate, a €10 bln increase in the monthly pace of asset purchases from €60 bln to €70 bln, and a three-month extension to the QE program through December 2016.

“We argue that additional ECB QE – likely to be announced in December this year – is likely to boost European EM central banksʼ acceptance of forward-looking negative real interest rates and lead to extra monetary policy easing,” JP Morganʼs analysts said.

Based on this, “we now see additional 35 bps in cuts (by the MNB) to 1%, but there is a risk of base rate cuts below the 1% level”, the analysts added.

The Monetary Council was already leaning on the dovish side and more ECB action would be enough to justify a change at the MNB, they noted.

“We think the MNB is quite likely to resume cutting the policy rate in early 2016… The earliest this could happen is at the December (MPC) meeting when the new inflation report is presented, but we think that the Council will prefer to wait one-two months to see the impact from additional ECB QE”, JP Morganʼs London-based economists said.