Mario Draghi has stoked expectations that officials will deliver an interest-rate cut today even as they doubt its impact.
The European Central Bank President said on April 4 he stands ready to act if Europe’s economic outlook worsens. After a month in which inflation plunged, economic confidence slumped and unemployment rose, 44 out of 70 economists in a Bloomberg News survey now predict the ECB will cut its benchmark rate by a quarter-point today to a record low of 0.5 percent.
With transmission of the ECB’s rates still hampered by the region’s debt crisis, the risk is that such a move will fail to revive the economy and take the central bank closer to exhausting its current armory. Draghi himself has voiced doubts about the effectiveness of further interest-rate cuts and board member Joerg Asmussen said last week there are limits to what the ECB can do.
“Data released since the April rate-setting meeting have provided further evidence that more monetary action could be needed in the euro zone,” said Carsten Brzeski, senior economist at ING Belgium SA in Brussels. “But as long as the transmission mechanism is not working, a rate cut could simply go up in smoke.”
The ECB decision is due at 1:45 p.m. in Bratislava, where the Governing Council is meeting this month. Draghi holds a press conference in the Slovakian capital 45 minutes later.
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