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The Bank of Japan shocked global financial markets on Friday by expanding its massive stimulus spending in a stark admission that economic growth and inflation have not picked up as much as expected after a sales tax hike in April. Rabobank Senior Currency Strategist Jane Foley says forced QE is likely in the euro zone too, but it really is no panacea, it has its problems too.
SHOWS: LONDON, ENGLAND, UK (OCTOBER 31, 2014) (REUTERS - ACCESS ALL)
1. (SOUNDBITE) (English) RABOBANK, SENIOR CURRENCY STRATEGIST, JANE FOLEY, SAYING:
JOURNALIST ASKING JANE FOLEY: "We've just had inflation numbers and also unemployment numbers bang in line with expectations, but still very weak. What do you make of it?"
FOLEY: "I think it's exactly right. Unemployment rate, 11.5 percent, high by any measure really, and CPI, 0.4 percent year-on-year weak by any measure so you have an environment in Europe which we've been confirmed by data for the last few months of a very slow growth and very low inflation and that really does put a lot of pressure on the ECB really to try and do something about that."
JOURNALIST: "Should the ECB be doing what the Bank of Japan is doing, do you think?"
FOLEY: "Well of course we all know, it's a lot more complex in the euro zone. Japan - one single nation, the U.S. - one single nation but of course the euro zone made up of 18 separate countries and within that, there is still a lot of opposition to quantitative easing. It's quite possible that if quantitative easing was announced that the ECB would be pulled through the law courts, certainly we know that in Germany, there is still a lot of opposition. But there is also the case that the tools in the ECB's tool box are of course running down and it is quite possible that they will be forced into QE even though I think we know by now that QE really is no panacea, it has its problems too. But certainly for us, we do think it is increasingly likely."
JOURNALIST: "When do you think this might come, this forced QE?"
FOLEY: "Well, probably not yet. I mean the ECB are just going through other policy measures but we do think that perhaps by the end of the first quarter, there's probably around about 60 percent to 65 percent chance that they will have announced something which is along the lines of full-blown quantitative easing."
JOURNALIST: "And as you rightly say, Jane, QE has got its issues as well and risks like income inequality, too much liquidity out there stimulating the markets. We've got the ECB, BoE meeting next week. What do you expect to hear from them?"
FOLEY: "Well again, very dovish talk from the ECB but probably no policy measures yet. Bank of England, I mean we won't have a statement almost certainly and we will have to wait a couple of weeks for those minutes. But I think the market has gone through a big adjustment recently for the Bank of England. The market's pushed out its expectations for the first Bank of England hike into a little bit later, perhaps still Q1, maybe Q1, Q2 as opposed to Q4, Q1 and I think that really has been on the basis of not just a slowdown and the slower growth in the euro zone but of course, but of course still very benign inflation pressures in the UK too."