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Forex Flash: The ECB will not cut rates at least through mid-2015 - Goldman Sachs

FXstreet.com (San Francisco) - Market is debating about that the ECB's rate cut possibilities in the short term as some eurozone countries are in a bad shape, the Euroarea GDP is contracting and the inflation is somehow controlled. Now It looks a growing likelihood that the ECB is on the verge of a rate reduction.

But the Goldman Sachs analyst team thinks different. The bank expects the "Euro area continues in contraction, by -0.5% in 2013, before a return to positive growth of 0.8% in 2014." This situation will be the "result of the damaging but necessary combination of continued public sector austerity and private-sector deleveraging," they points.

"Still, with financial conditions having eased quite substantially through enacted and prospective ECB policy, a sharper contraction has been avoided," Goldman analysts comment. "ECB policy will aim to reduce the segmentation of financial markets further with targeted measures such as the Outright Monetary Transaction (OMT) programme."

On the bank of this situation, Goldman Sachs expects the "ECB to keep policy rates on hold at least through mid-2015. In the case of a worst situation and "while a rate cut could become a possibility if the core countries weaken further, credit easing would be more effective..."

Goldman Sachs expects Euro Area to contract -0.5% in 2013; Advance 0.8% in 2014 and accelerates somewhat 1.2% in 2015 and 1.5% in 2016.

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