ECB Asmussen Cautions About Effects of Rate Cuts

A top European Central Bank official warned Thursday that another interest rate cut might not be much help for eurozone countries in recession — because already low rates are not getting through to businesses and consumers.
Joerg Asmussen, the bank’s top official for international relations, said that the “pass-through of rate cuts” would be “limited” since troubled banks are not able to send them on. Meanwhile, he cautioned that ultra-low interest rates can take pressure off governments and banks to fix their troubles.
“Monetary policy is not an all-purpose weapon for any kind of economic illness,” he said in a speech in London. The remarks appeared aimed at dampening recently heightened expectations for a rate cut at the bank’s meeting next Thursday. Stocks have risen and the euro has fallen on expectations of a cut.
A run of disappointing economic news this week has fueled market expectations that the bank will cut rates from a record low of 0.75 percent to stimulate the economy of the 17 European Union countries that use the euro. The eurozone is in a recession and the bank expects it to shrink 0.5 percent this year — but start to recover gradually by year end. Data has cast doubt on those hopes.

via Yahoo

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza