LONDON (Reuters) - Recent weak economic data and turbulence in Italy point towards an extension of the European Central Bank’s stimulus scheme, with an interest rate hike unlikely before 2020, Franklin Templeton’s head of European fixed income said on Tuesday.
ECB policy makers gather next week in a meeting that is likely to be scrutinized closely for clues on the ECB’s timetable for scaling back asset purchases - currently scheduled to end in September.
In a note, Franklin Templeton’s David Zahn said he expected the ECB to extend stimulus at least to the end of this year and most likely into 2019.
“The recent flare-up in Italy only reinforces our view that the ECB will extend the asset-buying programme into 2019. And, we think the likelihood of rate hikes is now pushed out much further into the future,” Zahn said.
He added that it was “difficult to see” interest rate hikes in the euro zone before 2020.
Current money market pricing suggests investors anticipate a ECB rate rise by September next year.
Reporting by Dhara Ranasinghe; editing by Sujata Rao