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ECB action in December? Don't count on it: Posen

The European Central Bank (ECB) will not to boost monetary stimulus further before the U.S. Federal Reserve hikes interest rates, Adam Posen, President of the Peterson Institute for International Economics, told CNBC Tuesday.

Market watchers broadly believe the Fed will hike rates in December, while the ECB hinted in October that it could announce more stimulus measures in December.

But Posen said the Fed had already "done part of the job" for the ECB by lowering the euro-dollar exchange rate, acting as a further stimulus for Europe as a weaker currency boosts exports.

He believed the ECB would wait until 2016 before it committed to further easing. That could include a cut to the already negative deposit rate, the rate the ECB charges banks to park money with it, as well as an expansion of its existing 1 trillion euro ($1.1 trillion) asset purchase program.

Posen said that "clearly the exchange rate channel is what the ECB is keying on…but I do think it makes sense both politically and tactically for the ECB to wait 'til the Fed moves as we now all expect it to do in December to see how much more they get on euro-dollar."

"But at the same time it's not like Europe is booming, it's not like all of Europe is out of deflation so I think they will move in early 2016."


He said that ECB President Mario Draghi had made progress since announcing he would do "whatever it takes" to salvage the euro zone during the height of the region's sovereign debt crisis in 2012.

Global markets saw a sell-off on Monday as expectations of a Fed rate hike in December got stronger. The chair of the Federal Reserve Janet Yellen hinted last week at a December hike and was helped by a robust jobs report followed on Friday, further strengthening the rationale behind a hike.

Posen said he too was now expecting a December rate hike "like everybody else" and said the next jobs report in late November should not make much of a difference to the Fed's expected strategy.

Separately, a former governing council member of the ECB said there was "a game here as to who moves first" between the ECB and Fed in terms of rate hike timing.

"In fact, maybe the Fed decided to move in the fear that the ECB would do even too much in the opposite direction," he said.

"I think Draghi wanted to set the stage and maybe to tell the markets they were ready to do it (increase) but whether they cut the deposit rate remains to be seen. It's not an easy move to reverse, cutting QE (quantitative easing) is easier, but certainly there will be intense discussions in the next weeks to prepare the ground."

Bini Smaghi said the bank would look at inflation forecasts before making any decision over increasing stimulus as soon as December.

On the other side of the Atlantic, in the U.K., the central bank has also been mulling over a rate hike against a backdrop of solid growth but falling prices, far from the bank's 2 percent inflation target.

In the Bank of England's last policy meeting in October only one member of the bank's nine-member monetary policy committee voted for a rate rise. Another risk for the economy is a referendum sometime in 2016 (expected mid-year) on the U.K.'s membership of the European Union (EU).

Posen, a former member of the Bank of England's monetary policy committee, said it was reasonable for the Bank of England to wait until after the referendum before increasing interest rates.

He said the so-called "Brexit" risk had "to be taken seriously" and hoped the referendum would take place in mid-2016, and not earlier. "It's better for the U.K. and Europe if it's soon but it increases the volatility and scrutiny on sterling." He said slack in the labor market in the U.K. and "under-employment" also warranted a delay in a rate hike.

- By CNBC's Holly Ellyatt, follow her on Twitter @HollyEllyatt. Follow us on Twitter: @CNBCWorld