The ECB looks set to leave interest rates on hold at 1.0% at its August policy meeting and is very unlikely to announce any new measures to stimulate the economy. The Bank is biding its time for now, hoping that its generous liquidity provision will achieve the desired boost to commercial bank lending. But we think that this might be too much to hope. With the economy still contracting and deflationary pressures building, there remains a chance that outright quantitative easing will eventually be required.
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