Last month’s dive in euro zone inflation has put a European Central Bank rate cut back on the agenda, but with bank-to-bank lending rates already near zero, markets are struggling to see what difference it might make.
In recent months, further ECB cuts had all but been written off. Troubled economies were showing signs of stabilization, the bank’s main borrowing rate was at a record low and its deposit rate, which became more important when it flooded markets with ultra-cheap cash in the crisis, was at zero.
But after a couple of low-ball inflation numbers, the mood is switching towards a possible 25 basis point refi cut to 0.25 percent soon – albeit not this week according to a Reuters poll.
The question is whether a cut would make any difference.
The short answer may be no. The ECB has long complained its low rates are not getting through to euro zone trouble spots where worries about debt levels and lending to and by banks remain high.