March 31 - Inflation in the euro zone is back at levels that many investors see as warranting another interest rate cut. As Ciara Sutton reports March data could prove a make-or-break moment for European Central Bank policy.
It's the shock drop that could force the ECB to take radical action - euro zone inflation is at its lowest level in over four years. A flash reading shows consumer inflation fell 0.2% from 0.7% - below expectations. It puts the bloc at risk of deflation when it's only just out climbing out of recession. But Mark Parry from Aberdeen Asset Management doesn't expect the bank to react. (SOUNDBITE) (English) SENIOR INVESTMENT MANAGER, ABERDEEN ASSET MANAGEMENT, MARK PARRY, SAYING: "Policy is there to protect against abnormal and disruptive events. The chances of that in terms of the euro zone crisis is well behind us. So as long as growth momentum is broadly positive, as long as inflation doesn't look like it is going to fall dramatically, there is no pressing need for a policy response, but certainly we are closer to that than when inflation was closer to the ECB's target" The ECB likes to see inflation at just below 2 percent. So after six months in the below 1% "danger zone" is a cut to the already low .25% on the cards? Senior Economist at Berenberg Bank, Christian Schulz, says it's not the only option. (SOUNDBITE) (English) CHRISTIAN SCHULZ, BERENBERG BANK SENIOR ECONOMIST, SAYING: "The standard policy of cutting rates further would be the first resort. Potentially a negative deposit rate is another one. I think LTROs are also excluded after the situation in the money markets looks pretty benign. And certainly quantitative easing is a very last resort nowhere near being used." But markets are optimistic the ECB will take some form of growth-boosting measures. Global stocks rose on the prospect. And the International Monetary Fund fueled that by saying it believes the bank does have room to cut rates further.